EUR/USD: ECB hawks defend Euro above 1.0900 despite Fed rate hike signals, Powell’s Testimony eyed

• EUR/USD hesitates justifying US Dollar strength, grind higher after three-day downtrend.
• ECB policymakers keep suggesting higher rates even as inflation clues, growth numbers ease.
• Fed talks reiterate hawkish bias ahead of Powell’s bi-annual Testimony, US housing numbers came in strong.
• Risk-off mood, upbeat US data and hawkish Fedspeak allow Euro bears to stay hopeful.

EUR/USD edges higher past 1.0900 amid early hours of Wednesday’s Asian session, defending the late Tuesday’s rebound from the lowest levels in three days around 1.0920, as markets prepare for the week’s key events. In doing so, the Euro pair stays defensive despite broad US Dollar strength as the European Central Bank (ECB) Officials remain hawkish about future policy moves.

European Central Bank (ECB) policymaker Boris Vujčić said on Tuesday that they have to consider the risk of doing too much vs too little, adding that a soft landing might not be possible. On the other hand, ECB Governing Council member, Olli Rehn said that the underlying inflation is easing ‘only gradually’.

It should be noted that Germany’s Producer Price Index (PPI) rises by 1.0% for May versus 1.7% YoY expected and 4.1% prior whereas the monthly figures spread disappointment with -1.4% mark compared to -0.7% market forecasts and 0.3% previous readings. Previously, downbeat German and Eurozone statistics raised recession woes in the bloc.

On the other hand, Federal Reserve Governor Lisa Cook said "I am committed to promoting sustained economic growth in a context of low and stable inflation," in her statement to be given before the Senate on Wednesday. Further, Federal Reserve Governor Philip Jefferson said, “I remain focused on returning it to our 2% target.”

That said, US Housing Starts jumped to the highest level since April 2022 by rising 21.7% MoM in May versus -2.9% (revised from +2.2%) recorded in April and -0.8% market forecasts. On the same line, Building Permits were also upbeat for the said month, up 5.2% MoM versus -5.0% expected and -1.4% previous readings (revised from -1.5%).

Apart from the Fed versus ECB play and the data counters, the market’s risk-off mood also allowed the US Dollar to remain firmer and weigh on the EUR/USD price. That said, the sentiment soured after the People's Bank of China (PBoC) cut two key lending rates (Loan Prime Rate (LPR) and Medium-term Landing Facility (MLF) rate for the first time in almost a year. Additionally weighing on the risk appetite was the US-China tension about Taiwan.

Amid these plays, the Wall Street benchmark began the week on the negative side while the US Treasury bond yields also snapped a two-day winning streak.

Moving on, EUR/USD traders should pay attention to the speeches from second-tier ECB officials ahead of Fed Chair Jerome Powell’s bi-annual Testimony. Should Powell defends the hawkish moves, the Euro pair may witness further downside.

Technical analysis

Unless providing a daily close beyond the 1.0945-50 immediate resistance zone, the EUR/USD pair remains vulnerable to testing convergence of the 21-day and 50-day Exponential Moving Average (EMA), around 1.0835-30 by the press time.