Daily market analysis

US Stocks Gain on Tech Earnings Despite GDP Miss

April 28, 2023

On Thursday, the US stock market closed higher due to solid earnings from Meta Platforms, which boosted tech-related companies. The Dow Jones Industrial Average increased by 1.57% to 33,826.16, the Nasdaq Composite rose 2.43% to 12,142.24, and the S&P 500 climbed 1.96% to 4,135.35. It was the best day since January for the Dow and S&P 500 and since March for the Nasdaq. Meta shares surged by 13.9% following its better-than-expected quarterly revenue report, and several analysts raised their price targets for the company. Other tech-related companies such as Amazon, Alphabet, Microsoft, and Apple also experienced gains.

Despite weaker-than-expected GDP data, which suggested that the Federal Reserve could wrap up its tightening campaign soon, the stock market continued to rise. The US economy grew 1.1% in the first quarter, while economists had predicted an expansion of 2%. Honeywell, an industrial bellwether, rose by more than 4% due to its better-than-expected quarterly report. However, Caterpillar, another barometer of the global economy, fell by around 0.9% as investors feared a build-up in inventory suggested a slowdown in demand. The Dow and S&P 500 were slightly above their flatlines for the week-to-date, while the Nasdaq gained 0.6% over the same period. However, the Nasdaq has lagged month-to-date, shedding 0.7%, while the Dow and S&P 500 rose 1.7% and 0.6%, respectively, since April began. The Fed is expected to announce its latest policy decision next week.

On Thursday, all sectors in the US stock market experienced gains, with the communication services sector leading at 5.53% and the energy sector having the smallest increase at 0.44%. The consumer staples and healthcare sectors had modest gains at 1.04% and 0.51%, respectively, while the information technology sector rose by 2.17%. Overall, the stock market increased by 1.96%.

Major Pair Movement

On Thursday, the US dollar index remained mostly unchanged, increasing by only 0.08%, as the market focused on strong performances by tech companies with better-than-expected earnings reports. Investors are also looking ahead to the end of the week and the end of April and next week’s FOMC meeting, which could provide new direction from the Fed after a slowdown in interest rate hikes.

During the Asian session, the EUR/USD pair rebounded above 1.1030 with support from buying interest at the psychological level of 1.1000, aided by a correction in the US Dollar Index (DXY). The Federal Reserve is expected to raise rates by 25bps next week, followed by two 25bp cuts by the end of the year, while the ECB is fully priced for a 25bp hike in its May 4 meeting, followed by two more 25bp hikes by September, with no real rate cuts until 2024. The UK’s inflation rate of 10.1% presents a challenge for the BoE, but the sterling’s uptrend seems less strong than that of the EUR/USD pair. Late weakness in the equity market and oil prices may increase demand for the yen and dollar, leaving high beta pairs such as AUD/USD vulnerable unless upcoming US data alleviates concerns of a recession.

Technical Analysis

EUR/USD (4 Hours)

The EUR/USD is set to close flat on Thursday, hovering above the 1.1000 level, with the Euro facing strong resistance around 1.1060. The undecided market is contributing to the slow moves around the pair, as traders await new data ahead of a busy week with the Federal Reserve (Fed) and the European Central Bank (ECB) meeting, as well as the US official employment report. The ECB is expected to deliver an interest rate hike next week, with the question being how much: 25 or 50 basis points. Data due on Friday, including Eurozone GDP estimates and Consumer Price Index data from Germany, France, and Spain, will be critical ahead of that meeting. The inflation figures will put pressure on the ECB to curb inflation, with interest rate markets showing the expected peak rate at 3.75%.

Based on the technical analysis, the EUR/USD pair has moved lower and broken our support level. Currently, the price has moved below the middle band of the Bollinger band, with expectations of moving lower and targetting the lower band. It is anticipated that the EUR/USD will reach the support level of 1.0987. The Relative Strength Index (RSI) is currently at 50, indicating that the market is neutral for the EUR/USD.

Resistance: 1.1050, 1.1072

Support: 1.1016, 1.0987

XAU/USD (4 Hours)

The US Dollar bulls were supported by the United States’ preliminary Gross Domestic Product (GDP) data for Q1, which capped the upside attempts in XAU/USD price yet again. Although the headline US Q1 GDP number missed estimates, resilient personal consumption, inventories accumulation, and higher inflation component grabbed investors’ attention, ramping up the odds of a 25 basis points (bps) Fed rate hike next week. The details of the report triggered a fresh rally in the US Treasury bond yields across the curve, with the benchmark 10-year US Treasury bond yields recapturing the critical 3.50% level, reducing the demand for the safe-haven US government bonds and XAU/USD price. However, the risk-on flows allowed XAU/USD price to finish the day almost unchanged. Investors now look forward to the US Core PCE Price Index data for a fresh directional move in the XAU/USD price, as well as the end-of-the-week flows and repositioning ahead of next week’s Federal Reserve policy announcements, which could influence the US Dollar valuations and XAU/USD price action.

Based on technical analysis, XAU/USD reached back below the $2,000 level showing that the market is still in consolidation mode. XAU/USD has the potential to move back higher as the price is moving toward the middle band and try to reach the upper band of the Bollinger band. The Relative Strength Index (RSI) currently stands at 54, suggesting a neutral but bullish trend.

Resistance: $1,993, $2,005

Support: $1,985, $1,972

Economic Data