What is the right course of action now?

Your answer is correct because both reducing speed and driving as far to the right as possible in your lane are the proper actions in this situation according to German traffic rules.

Reducing speed allows you to maintain better control of the vehicle, especially when approaching a bend or junction, ensuring safe navigation and sufficient reaction time. Driving as far to the right as possible within your lane helps keep you safely away from oncoming traffic and any parked vehicles or obstacles on the left side. This positioning also facilitates a smoother follow of the priority road and helps other road users anticipate your path.

Driving as far to the left as possible (option 3) would be incorrect here, as it could endanger you or hinder the traffic flow and contradict the lane discipline rules common on German roads. In summary, slowing down and staying right in your lane increases safety and follows the right-of-way principles at bends and junctions.