EUR/USD finds a cushion around 1.1040, market mood turns cautious ahead of US GDP

• EUR/USD has gauged an intermediate cushion around 1.1040 after a corrective move from a fresh annual high.
• A statement from the First Republic Bank that the US government was reluctant to provide liquidity support dented market sentiment.
• Investors are divided about the pace of interest rate hike to be adopted by the ECB in its monetary policy meeting.

The EUR/USD pair is consolidating in a narrow area around 1.1040 in the early Asian session. The major currency pair witnessed some profit booking after printing a fresh annual high of 1.0966 in the New York session. Investors turned cautious as the focus shifted to United States Gross Domestic Product (GDP) (Q1) data.

Market sentiment was extremely positive as investors were cheering bumper earnings data from US technology stocks such as Microsoft and Meta Platforms, however, the statement from the First Republic Bank that the government was reluctant to provide liquidity support after its collapse diluted the confidence of investors in the US administration.

S&P500 futures ended Wednesday’s session on a weak note despite soaring chances of steady interest rate guidance from the Federal Reserve (Fed) for its May policy meeting after the release of downbeat US Durable Goods Orders data.

The US Dollar Index (DXY) showed a V-shape rally after dropping to near the crucial support of 101.00 as downbeat market sentiment improved the appeal for the greenback as a safe-haven. Going forward, investors will keep their focus on the preliminary US GDP (Q1) data. As per the consensus, the US economy has grown by 2.0% in the first quarter of CY2023 on an annualized basis lower than the former growth rate of 2.6%. The lower pace of growth will cement fears of economic slowdown.

On the Eurozone front, investors are divided about the pace of interest rate hike to be adopted by the European Central Bank (ECB) in its monetary policy meeting next week. The street believes that options of 25 and 50 basis points (bps) are open as the shortage of labor is consistently propelling inflationary pressures.