EUR/USD rebounds above 1.0800 following sharp drop in early American session

• German ZEW Economic Sentiment slumped to 8.8 in February vs. 21.5 expected.
• NY Fed's Empire State Manufacturing Index rose sharply in February.
• US Dollar Index rose toward 99.50 but lost its traction.

The EUR/USD pair came under strong selling pressure in the early trading hours of the American session and touched its lowest level since April of 2017 at 1.0786 before staging a rebound. As of writing, the pair was trading at 1.0813, still down 0.2% on a daily basis.

The broad USD strength seems to have triggered the selloff. After the Federal Reserve Bank of New York announced that the headline General Business Conditions Index of the Empire State Manufacturing Survey surged to 12.9 in February to beat the market expectation of 5, the US Dollar Index (DXY) gained traction and advanced to its highest level since early October at 99.47.

However, the poor performance of the US Treasury bond yields made it difficult for the USD to preserve its bullish momentum and helped the pair recover from lows. The DXY is now steady near the 99.30 area, where it was up 0.15% on the day.

Economic sentiment continues to deteriorate in Germany

On the other hand, the ZEW Economic Sentiment Index for Germany slumped to 8.7 in February from 26.7 and missed the market expectation of 21.5 by a wide margin to weigh on the shared currency. 

Commenting on the findings, "expectations regarding the development of the export-intensive sectors of the economy have dropped particularly sharply,"  said ZEW President Professor Achim Wambach. "Besides, the end of 2019 and the beginning of 2020 saw a worse-than-expected development of the German economy."

There won't be any other macroeconomic data releases from the US in the remainder of the session and the USD's market valuation is likely to continue to drive the pair's action.

Technical levels to watch for