Enabling SSH password authentication is unnecessary and not a good idea, especially if your temporary passwords are simple. I haven't used Hetzner but there is probably a way to upload a file or to paste into the console, or else if you fix your keyboard you could at least type a URL to download the public key from the internet. You may want to look into cloud-init instead of manually installing and configuring your VMs.
LUKS may not make your server meaningfully more secure. Anyone who can snapshot your server while it's running or modify your unencrypted kernel or initrd files before you next unlock the server will be able to access your files.