Head and Shoulders Signal More Lows

The EUR/USD pair found a strong resistance as investors refocus on the upcoming European Central Bank (ECB) decision and US consumer inflation data.

Bearish View

• Sell the EUR/USD pair and set a take-profit at 1.0627.
• Add a stop-loss at 1.0791.
• Timeline: 1-2 days.

Bullish View

• Set a buy-stop at 1.0746 and add a take-profit at 1.0800.
• Add a stop-loss at 1.0675.

The EUR/USD pair found a strong resistance as investors refocus on the upcoming European Central Bank (ECB) decision and US consumer inflation data. It is trading at 1.0697, which is slightly below last week’s high of 1.0787.

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Focus on the ECB

The main catalyst for the EUR/USD pair this week will be the upcoming interest rate decision by the ECB. This will be a pivotal meeting because it will signal what the bank will do later this year.

Most analysts expect the data to show that the central bank will leave interest rates unchanged and provide signals that it will hike in July. It will be the first time that the bank has hiked interest rates in more than a decade.

At the same time, the ECB will likely commit itself to create a new bond-buying program to cushion vulnerable economies like Italy. The bank already has about 200 billion euros to spend on purchasing stressed government bonds. On Monday, the gap between Italy’s and German’s 10-year yield fell from last week’s high of 2.14% to 2.07%. The spread has been in a strong bullish trend in the past few weeks.

The ECB decision comes at a time when the Eurozone economy is in a crisis as inflation surges. Data published last week showed that the bloc’s inflation has surged to a record high of 8.1%. Analysts expect that the bloc’s inflation will keep rising in the coming months as the bloc moves to buy oil and natural gas from other countries.

The EUR/USD pair will also react to the upcoming Euro area GDP numbers that are scheduled for Wednesday. Analysts expect the data to show that the bloc’s economy expanded by 5.1% on a year-on-year basis.

EUR/USD Forecast

The EUR/USD pair has been in a strong bullish trend in the past few weeks. It rose to a high of 1.0791, which was the highest level on April 22. Now, it has formed what looks like a head and shoulders pattern.

The pair has moved slightly below the 25-period and 50-period moving averages while the MACD has moved to the neutral point. The pair has moved below the 50% Fibonacci Retracement level. Therefore, the pair will likely keep falling as bears target the key support level at 1.0640.