EUR/USD turns sideways around 1.0640, following the footprints of lackluster US Dollar

• EUR/USD is expected to display a lackluster show amid the year-ending vacation week.
• Market sentiment turned risk-averse on Tuesday despite China easing quarantine rules for inbound travelers.
• In spite of supply chain disruptions easing expectations, German firms expect a mild recession in CY2023.

The EUR/USD pair is showing signs of volatility contraction after wild moves recorded on Tuesday. The major currency pair is expected to remain sideways around 1.0640 amid an absence of a potential trigger for a decisive move. The holiday-truncated week with the unavailability of economic events is resulting in lackluster performance by the FX domain.

Market sentiment turned risk-averse on Tuesday despite easing quarantine rules for inbound travelers by the Chinese administration- a major step towards reopening the economy to delight international trade. S&P500 surrendered its revival move recorded on Friday as tech stocks face immense pressure. Meanwhile, the return on US Treasury bonds has fetched the limelight. The 10-year US Treasury yields have accelerated to near 3.85%.

Meanwhile, the US Dollar Index (DXY) is displaying back-and-forth moves around 103.83 and is expected to continue its lackluster performance. The USD Index is holding its territory despite the United States Census Bureau revealing on Tuesday that the US international rate deficit declined by $15.5 billion to $83.3 billion in November from $98.8 billion in October.

A decline in economic activities indicates a slowdown as the impact of higher interest rates has started shaking firms’ operations. This might result in lower wages and a slower employment process ahead. However, the context will support a cooldown of ultra-hot inflation in the United States economy.

On the Eurozone front, firms in Germany are expecting a mild recession in CY2023 despite the expectations of a gradual ease in supply chain disruptions. BDI’s President Siegfried Russwurm said, "The last quarter of 2022 and the start of 2023 are likely to be accompanied by a decline in economic activity. However, we expect only a slight slump" as reported by Reuters.