EUR/USD returns to bear’s desk on poking 1.0500, Fed’s Powell in spotlight

EUR/USD holds lower grounds near 1.0510, after refreshing the daily low near 1.0500, on bear’s return after a two-day advance. In doing so, the major currency pair awaits comments from the European Central Bank (ECB) and the US Federal Reserve (Fed) policymakers while justifying the risk-aversion wave amid early Wednesday morning in Europe.

The quote’s latest weakness could be linked to the broad US dollar rebound ahead of Fed Chair Jerome Powell’s testimony on the bi-annual Monetary Policy Report. Also exerting downside pressure on the pair are the fears of economic slowdown due to the central bankers’ aggressive rate hikes.

US Dollar Index (DXY) picks up bids to refresh its intraday high around 104.65, rising for the first day in three, by the press time. That said, the greenback gauge’s latest moves part ways from the previous day’s downbeat US data.

US Existing Home Sales dropped to the lowest levels in two years when talking the annualized number. Further, the Chicago Fed National Activity Index also dropped to 0.01 in May versus a revised down 0.04 prior.

It’s worth noting that hawkish comments from ECB Governing Council member Olli Rehn also favored the EUR/USD prices the previous day. “It is very likely that September rate hike is bigger than 25 bps,” said ECB’s Rehn per Reuters. His comments raised doubts about the ECB’s latest verdict suggesting a 0.25% rate hike in July and September.

On a different page, the options market remains hopeful of the EUR/USD rebound as the risk reversal (RR), the spread between calls and puts, prints firmer figures of late. That said, the daily RR rose during the last two days, +0.110 at the latest, whereas the weekly gauge of options market behavior eyes the strongest print in a month by snapping a three-week downtrend, around +0.140 by the press time.

Moving on, multiple ECB policymakers are up for speaking on Wednesday and can trigger a rebound of the EUR/USD prices. Also important will be the preliminary readings for Eurozone Consumer Confidence for June, expected -20.5 versus -21.1 prior.

Above all, Fed Chair Powell’s ability to justify the biggest rate hike since 1994 will be crucial for the EUR/USD prices as any failures to convince bulls, could easily propel the quote.

Technical analysis

EUR/USD justifies the previous day’s downside break of a symmetrical triangle while teasing sellers around 1.0500. Also favoring sellers is a looming bear cross on the MACD and a clear U-turn from the 200-SMA, around 1.0590 by the press time. However, a one-week-old ascending support line, near 1.0490 by the press time, challenges the EUR/USD pair’s nearly downside.