EUR/USD recovers sharply to near 1.0680 as US Dollar Index drops, German Inflation eyed

The EUR/USD pair has sensed buying interest after dropping to near 1.0650 in the Asian session. The major currency pair has recovered as the rebound move in the US Dollar Index (DXY) has faded. Broadly, the major is displaying a sideways auction profile as investors are awaiting the release of the Eurozone Harmonized Index of Consumer Prices (HICP) data for fresh impetus.

The US Dollar Index has sensed selling pressure after failing to extend its recovery above the immediate resistance of 103.50. The USD Index is declining sharply and will likely re-test its critical support at 103.00. Meanwhile, S&P500 futures have recovered sharply after kicking off the session on a weak note. A responsive buying action near lower levels indicates the existence of value-buying at lower levels. This also shows a sheer recovery in the risk appetite of the market participants.

According to the consensus, the German HICP (Dec) will escalate to 11.8% vs. the former release of 11.3%. Rising wage rates have propelled inflationary pressures in Germany. European Central Bank (ECB) President Christine Lagarde cited higher wage rates as responsible for more juice to firmer inflation.  As reported by Reuters, ECB President cited that the central bank must prevent this from adding to already high inflation.

On the United States front, the release of the Federal Open Market Committee (FOMC) will remain in focus. Investors will keep an eye on the policy outlook for CY2023 and current economic prospects for taking informed decisions.