Overnight Headlines

*US stock futures hit new record highs after patient Fed and robust Big Tech earnings

*USD weakens as Powell in no rush to withdraw uber-accommodative policy

*Q1 US GDP consensus at 6.8% with more to come in Q2

USD softened overnight with a bearish engulfing candle pointing to more losses after traders took out this week’s low. A better-than-expected GDP print may slow some of the losses but the bearish trend is still very much intact.

US equities closed mixed with sector performance earnings-driven with Microsoft and tech lagging while communication services like Google and energy with oil strength leading gains. Apple and Facebook blew through expectations overnight.

Market Thoughts – Markets look to June FOMC

The Fed did precisely what everyone thought last night, very little. An interim meeting with no new forecasts or “dots” never really produces much, with the two key phrases from Chair Powell being that “it is not the time to start talking about tapering” and “we are not close to substantial further progress”. Though their outlook is more upbeat, the Fed wants to see more data and is sticking to higher inflation being mainly due to “transitory effects”.

For the dollar, this means more losses as the Fed remains outcome based as opposed to forecast based and is not withdrawing any stimulus any time in the near term. Normalisation of policy in other parts of the world will show up in other currencies, eg CAD, as these strengthen more and narrow the dollar’s advantage.

Chart of the Day – USD/JPY to move on bumper US GDP

The US GDP Q1 advance estimate is released this afternoon with consensus looking for an increase of 6.8% q/q. Led by consumer spending and rocket propelled by stimulus cheques, many on Wall street are predicting even better growth this quarter with double-figure estimates.

After printing above 109 yesterday morning before the Fed meeting, USD/JPY promptly moved back under this important psychological level and a prominent Fib marker (23.6% of the January to March move). The collection of dojis last week implied a trend change with lots of indecision and then Tuesday’s sharp about-turn. But the firm rejection of higher prices yesterday does mean further USD gains through 109/109.35 may be hard to come by. We may see a bump post a super-strong GDP number this afternoon and the 50-day moving average does offer support below around 108.45. Remember that US bond yields correlate highly with this pair. However, there is a lot of noise around the 109 level with March’s range trading looking tough to beat. High expectations of a big GDP figure may also be in the market too.