EUR/USD extends recovery toward 1.0900 as 10-year US T-bond yield drops to all-time lows

• 10-year US Treasury bond yield fell to a new all-time low on Tuesday.
• US Dollar Index looks to close in red for third straight day.
• German economy grew 0.3% in fourth quarter as expected.

After spending the first half of the day under modest bearish pressure near 1.0850 on Tuesday, the broad-based USD weakness allowed the EUR/USD pair to gain traction during the American session. As of writing, the pair was up 0.25% on the day at 1.0880.

Heightened worries over the coronavirus outbreak having a long-lasting negative impact on the global economy amid a rising number of infections outside of China continue to force investors to seek refuge on Tuesday.

DXY drops below 99

With the demand for safe-haven US Treasury bonds staying strong, the yield on the 10-year reference, which erased nearly 7% on Monday, erased more than 4% and touched a fresh all-time low of 1.314% to weigh heavily on the greenback. The US Dollar Index (DXY) extended its slide and fell to a 12-day low of 98.94 in the last hour to help the pair preserve its recovery momentum.

In the meantime, the data published by Destatis on Tuesday revealed that the German economy expanded by 0.3% on a yearly basis in the fourth quarter to match the market expectation. On the other hand, the Richmond Fed Manufacturing Index in February slumped to -2 from 20 in January and missed analysts' estimate of 13 by a wide margin.

There won't be any significant macroeconomic data releases on Wednesday and markets will remain focused on coronavirus headlines.

Assessing the latest developments regarding the outbreak, "the risk that more countries see a more significant spread of the virus seems to have risen, which would increase the size and longevity of the economic shock," said Nick Kounis, Head of Financial Markets Research at ABN AMRO. "There is too little information at present to make any further adjustments in economic forecasts, though we continue to judge that the risks to our current projections are clearly tilted to the downside."

Technical levels to watch for