EUR/USD probes three-day downtrend near mid-1.0800s, Eurozone GDP, US Consumer Confidence eyed

• EUR/USD picks up bids to pare a three-day losing streak and bounces off a one-week low with a slower pace.
• Market’s cautious optimism seems to weigh on the US Dollar amid the inactive yields.
• Downbeat German GDP, challenges to sentiment, raise doubts on the latest recovery.
• US CB Consumer Confidence for January, Q4 Employment Cost Index will be important for fresh impulse.

EUR/USD licks its wounds near 1.0850 as traders reassess the previous bearish bias amid Tuesday’s sluggish mid-Asian session. In doing so, the major currency pair also takes clues from the market’s sigh of relief after a downbeat start to the key week.

It should be noted that the news suggesting US President Joe Biden’s administration’s readiness to revoke the Covid-led emergencies appeared to have favored the sentiment of late. On Monday, China’s Center for Disease Control and Prevention (CDC) said, reported by Reuters, “China's current wave of COVID-19 infections is nearing an end, and there was no significant rebound in cases during the Lunar New Year holiday.”

While portraying the mood, the S&P 500 Futures print mild gains despite downbeat Wall Street performance, whereas the US 10-year Treasury yields remain unchanged at around 3.55% after posting a three-day winning streak in the last.

On Monday, the risk-off mood joined firmer Treasury bond yields to favor the US Dollar buyers. The sour sentiment could be linked to the anxiety ahead of this week’s top-tier data/events and the mixed headlines over China’s capacity to justify the latest optimism. Adding strength to the risk-off mood could be the cautious risk profile before the equity heavyweights like Amazon, Alphabet, Apple, and Meta release their quarterly earnings.

Elsewhere, downbeat prints of German data also weighed on the EUR/USD prices. The Economic Sentiment Indicator in the Euro area improved to 99.9 in January from an upwardly revised 97.1 prior and 97.0 market forecasts. The Consumer Confidence, however, matched the 20.9 market forecast and previous readings during the stated month. That said, the Industrial Confidence and Services Sentiment also improved during January.

On the other hand, the preliminary readings of Germany’s fourth quarter (Q4) Gross Domestic Product (GDP) came in softer than 0.0% expected and 0.4% prior to -0.2% QoQ. "After the German economy managed to perform well despite difficult conditions in the first three quarters, economic performance slightly decreased in the fourth quarter of 2022", Destatis noted in its publication. The same raises fears of downbeat Eurozone GDP and a sustained EUR/USD pullback.

In addition to the Eurozone Q4 GDP, expected 0.0% QoQ versus 0.3%, the Q4 US Employment Cost Index (ECI) and the Conference Board’s Consumer Confidence gauge for January will also be crucial for the pair traders to watch for fresh impulses.

Technical analysis

Despite the latest corrective bounce, a clear upside break of the support-turned-resistance line from January 10, close to 1.0860, becomes necessary to recall EUR/USD buyers.