EUR/USD pulls back from failed test of 21DMA, consolidates near 1.0500 as traders mull recent Fed/ECB speak

• EUR/USD has pulled back from an earlier test of its 21DMA in the upper-1.0500s and is pivoting the big figure.
• ECB and Fed speak have both been in focus recently, with both sounding more hawkish.

EUR/USD has pared some of Tuesday’s outsized gains, despite more rhetoric from ECB policymakers supporting the notion of a summer start to the upcoming rate hiking cycle on Wednesday. The pair has fallen back from earlier session highs in the 1.0560s where it tested its 21-Day Moving Average at around 1.0570 to pivot either side of the 1.0500 level, with final Eurozone Consumer Price Inflation figures for April seeing modest negative revision (though still remained at elevated levels).

At current levels just above the 1.0500 figure, the pair is trading about 0.4% lower on the day, with weakness likely also reflecting the hawkish tone of Fed Chair Jerome Powell on Tuesday and from other FOMC policymakers in recent days. To recap, the main message from the Fed Chair was that the central bank remains hyper-focused on tackling sky-high inflation and will not hesitate to move rates above so-called neutral (i.e. the 2.5% area) if required.

For now though, with Eurozone yields rallying on recent ECB hawkishness (recall Klass Knot flouting the possibility of a 50 bps rate hike in July on Tuesday) to a greater degree than US yields, rate differentials seem likely to keep the pair support in the 1.0500 area. Recent strong US data (Retail Sales on Tuesday beat expectations) coupled with positive China developments (big tech crackdown and Shanghai lockdown easing) is keeping risk appetite relatively well supported versus last week.

This is another factor helping to keep EUR/USD in the 1.0500s. But as was the case back in April, the 21DMA is likely to prove a formidable level of resistance. There is still plenty of worries about the Eurozone's economic outlook amid the fall-out of the war in Ukraine and the impact of sanctions on Russia. Looking ahead, there isn’t much of note on Wednesday’s calendar aside from some US housing data, so consolidation near 1.0500 may be the most likely outcome.