EUR/USD aims to extend recovery to near 1.0900 amid risk-on mood, German GDP eyed

• EUR/USD is looking to extend its recovery move to near 1.0900 after a minor correction.
• Further interest rate hikes by the Fed might slow down the US economy further.
• German GDP might display a de-growth of 1.1% from an expansion of 0.4% reported earlier.

The EUR/USD pair has corrected marginally to near 1.0887 in the early Tokyo session after a sheer recovery move from 1.0855. The major currency pair is looking to extend gains further to near the round-level resistance of 1.0900 amid the higher risk appetite of the market participants. The US Dollar Index (DXY) corrected dramatically to near 101.40 after failing to extend recovery above 101.80.

Better-than-projected release of the United States Gross Domestic Product (GDP) and stronger forward demand for Durable Goods provided strength to S&P500. The USD Index also get attention after upbeat GDP data for Q4CY2022 but further growth prospects still sound vulnerable.

Analysts at Wells Fargo have warned that while the economy came into the fourth quarter with solid momentum, it ended the quarter with a distinct loss of momentum. They have forecasted that real GDP will be more or less flat in Q1-2023 on a sequential basis as the Federal Open Market Committee (FOMC) to raise rates by a combined amount of 75 basis points (bps) at the next three policy meetings—will exert further headwinds on the economy.

Meanwhile, the Euro is likely to dance to the tunes of the preliminary German GDP (Dec) data, which is scheduled for Monday. On a quarterly basis, the economic data might display de-growth by 1.1% from the prior release of 0.4%. This might impact the Euro ahead. Apart from that, investors will keenly focus on the headlines related to the interest rate decision by the European Central Bank (ECB), which is scheduled for next week.

About Eurozone inflation projections, Germany's Economy Minister Robert Habeck cited “Inflation is still higher at the beginning of 2023, further containment then in the course of the year”. “Then in 2024 inflation will be lower than in 2023, with higher growth.”