EUR/USD stages modest rebound, trades above 1.0550

• EUR/USD dropped to freh multi-week low on Tuesday.
• Annual CPI in Germany declined to 8.6% in December.
• Wall Street's main indexes look to open in positive territory.

EUR/USD declined sharply in the early European session and touched its lowest level in three weeks at 1.0520 before staging a modest rebound. As of writing, the pair was trading at 1.0560, where it was still down nearly 1% on a daily basis.

The renewed US Dollar strength earlier in the day weighed heavily on EUR/USD. The risk-positive market environment, however, helped the pair limit its losses for the time being. At the time of press, US stock index futures were up between 0.4% and 0.8% on the day, pointing to a positive opening in Wall Street's main indexes.

In the meantime, the data from Germany revealed on Tuesday that inflation, as measured by the Consumer Price Index (CPI), declined to 8.6% on a yearly basis in December from 10% in November. This reading came in below the market expectation of 9% and made it difficult for the Euro to gather recovery momentum.

S&P Global's December Manufacturing PMI will be the only data featured in the US economic docket and it is expected to come in at 46.2, matching the flash estimate. The US Dollar's valuation is likely to continue to drive EUR/USD's action in the second half of the day with American investors returning from the three-day weekend.

Technical levels to consider