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

• EUR/USD has picked bids after dropping to near 1.0680 as the USD Index has lost strength.
• The major currency pair might continue its sideways performance ahead of German Inflation.
• A recovery in S&P500 futures is portraying the availability of value-buying at lower levels.

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 is likely to 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 indicates 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%. It seems that the inflationary pressures in Germany have been propelled by rising wage rates. European Central Bank (ECB) President Christine Lagarde cited higher wage rates as responsible for more juice to already firmer inflation.  ECB President cited that the central bank must prevent this from adding to already high inflation, as reported by Reuters.

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.