EUR/USD depreciates on risk-off sentiment ahead of Eurozone, US data, trades around 1.0840

• EUR/USD faces downward pressure as investors adopt a cautious stance ahead of key data.
• The subdued US Treasury yields could weaken the US Dollar.
• Traders await the Eurozone Economic Sentiment Indicator for February on Wednesday.

EUR/USD extends losses to near 1.0840 during the Asian session on Wednesday as traders adopt a cautious stance ahead of the Euro Zone Economic Sentiment Indicator for February and the preliminary Gross Domestic Product Annualized (Q4) from the United States, scheduled to be released later in the day.

The US Dollar Index (DXY) attempts to extend its gains on risk-off sentiment, however, subdued US Treasury yields could have contributed to the downward pressure for the US Dollar (USD). The DXY improves to near 103.90 with the 2-year and 10-year yields on US Treasury bonds standing at 4.68% and 4.29%, respectively, by the press time.

In December, the US Housing Price Index (MoM) increased by 0.1%, below both the expected increase of 0.3% and the prior increase of 0.4%. Additionally, US Durable Goods Orders declined by 6.1%, contrasting with market expectations of a 4.5% decrease and a previous decrease of 0.3%. According to the CME FedWatch Tool, the probability of rate cuts in March has diminished to 1.0%, while the likelihood of cuts in May and June stands at 21% and 49.8%, respectively.

However, the Euro (EUR) could draw some gains from the recent comments made by the European Central Bank (ECB) President Christine Lagarde on Monday. Lagarde mentioned that although inflation is steadily approaching the central bank's targets, the ECB is committed to keeping its current policy measures unchanged for the foreseeable future.

The Gfk German Consumer Confidence Survey for March matched expectations with a print of -29, compared to the previous reading of -29.6 in February. Later in the week, the focus will be on Germany’s Retail Sales and Consumer Price Index (CPI) inflation data for further insights into the economic landscape.

Economists at Commerzbank emphasize the importance of Friday's inflation figures, yet they see no discernible trend indicating a weaker Euro. On the other hand, Kit Juckes, Chief Global FX Strategist at Société Générale, highlights the significance of whether the Federal Reserve or the European Central Bank cuts rates first or most aggressively in determining the direction of the EUR/USD pair this year.