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EUR/USD defends bulls around 1.0550 ahead of Fed Chair Powell’s Testimony

EUR/USD holds onto the previous two-day gains around 1.0535-40 during Wednesday’s initial Asian session. The major currency pair’s latest rebound could be linked to the softer US dollar, as well as hawkish comments from the European Central Bank (ECB) policymaker. However, cautious sentiment ahead of Fed Chair Jerome Powell’s Testimony on the bi-annual Monetary Policy Report restricts immediate moves of the quote.

European Central Bank (ECB) Governing Council member Olli Rehn said on Tuesday, “it is very likely that September rate hike is bigger than 25 bps.” His comments raised doubts about the ECB’s latest verdict suggesting a 0.25% rate hike in July and September, which in turn propels the EUR/USD prices.

On the other hand, Richmond Federal Reserve President Thomas Barkin said on Tuesday that there will be no rapid return for the U.S. economy to the experience of the previous decade of stable growth, jobs and inflation, Reuters reported. The policymaker also favored higher rates.

Furthermore, US President Joe Biden’s firm rejection of the recession fears seems to gain the market’s acceptance and underpin the firmer sentiment amid a lack of major negatives as the US traders began the trading week. Following Biden’s comments, his Economic Aide Heather Boushey also conveyed hopes of avoiding the recession. It’s worth noting that US President Biden’s readiness for the gas tax holiday and softer US data also underpinned the positive mood. Additionally, US Treasury Secretary Janet Yellen said that the traditional recession measure of two consecutive quarters of negative growth 'has typically worked' but recessions aren't all alike.

Talking about the 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.

Against this backdrop, the US Dollar Index (DXY) dropped for the second consecutive day, to 104.40 by the press time whereas Wall Street pared the biggest weekly loss in two years. Further, the US 10-year Treasury yields also rose to 3.27% at the latest.

Looking forward, various ECB policymakers are up for speeches and may entertain EUR/USD traders. However, Powell’s art of defending the tighter monetary policies and the rate hikes will be crucial for the pair traders to watch for clear directions.

Technical analysis
The first daily closing above the 10-DMA, around 1.0500 by the press time, in nearly three weeks enables EUR/USD bulls to aim for early June’s swing low near 1.0630.

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