Bagnaia, 21 points ahead of second-placed Marco Bezzecchi, won last weekend in Italy, his third victory of the season.
Marquez has not placed on the podium this campaign and is 18th in the standings, but has never lost at the track, winning all eight of his previous races there.
"Considering the history of this track, Marc for sure has more possibilities than others (to win)" reigning MotoGP champion Bagnaia said.
"So for me, the main contender on this track would be him."
The sharp turns and narrow roads of the small Sachsenring track, one of the few to run counter-clockwise, favours Marquez's strengths, as well as those of his Honda motorcycle.
German TV expert Alex Hofmann told AFP subsidiary SID on Thursday the "exceptional changes in elevation" mean that the "technical strengths of the European motorcycles don't come into play."
Bagnaia said his performance in 2022 at the track, where he started strongly before crashing, would give him confidence ahead of Sunday's race.
"A year ago I was competitive at the Sachsenring until I crashed," the 26-year-old said.
"It is important we start the weekend with the same good feeling we had in 2022.
"We'll try, it won't be easy, but I'm optimistic we can perform well and be competitive."
Japanese dominance
Japanese manufacturers Honda, Yamaha and Suzuki have won all but one German MotoGP dating back to 1977. In 2008, Ducati won at the Sachsenring under Australian rider Casey Stoner.
Coming into Sunday's race, the top three riders in the standings are all on Ducatis, giving the Italian manufacturer a golden opportunity to improve its poor record in Germany.
Honda is yet to win a race this season. Marquez addressed the manufacturer's woes and shot down speculation he may be on his way out.
He said his decision to sign a new four-year contract "was not a mistake".
"I did not know I would break my arm and I did not know there would be a pandemic which would affect Asia more than Europe. All these things you cannot control."
Marquez said he had "a very important meeting" with Honda executives about the performance of the bike.
"It was a productive meeting," Marquez said. "Now we need to see something for the future".
"I have a contract this year and next year and I'm fully focused on what I have, to do my best.
"It's normal to speak about the future and all the rest, but be patient, we have time."
'Good people around'
Marquez, a six-time MotoGP champion, missed the 2022 race due to an arm injury which has required several operations.
With more than 600 days since his most recent win, the Spaniard credited those close to him with helping him through his injury battle.
"You need to have good people around you and a good atmosphere, and I'm very lucky to have this," Marquez told a pre-race press conference.
The Spanish rider also credited his "priorities" during his injury return.
"If you want to be at the top again, you will say 'no' to many things and to follow what you believe."
