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.

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.

Gold futures are struggling to hold on to weekly gains after a strong US jobs report for May raised the likelihood of maintaining the Federal Reserve’s approach to fighting inflation. Although the yellow metal is still high this year, it has been on a steady decline since March. After the US data was announced, the price of gold fell to the support level of $1840 an ounce at the beginning of this week’s trading, before settling around the $1856 level at the time of writing the analysis. Before the US jobs data, the price of gold maintained gains that reached the resistance level of 1875 dollars for an ounce. The gold price left its gains since the start of the year 2022 to date at 1.11%.

In the same way, the price of silver, the sister commodity to gold, fell below $ 22 again. Accordingly, the price of the white metal erased about 1.2% of the week’s gains, adding to its decline since the start of the year 2022 to date by more than 6.3%.

On the economic side, in May, the US economy added a total of 390,000 jobs, beating market estimates of 325,000. This was the lowest employment gain in 13 months. The country’s unemployment rate stabilized at 3.6%, while the labor force participation rate rose to 62.3%. Average hourly wages rose 0.3%, average weekly hours were unchanged at 34.6, and the national employment rate is still 0.5% lower than the pre-pandemic level.

Overall, the strong US jobs report prompted investors to acknowledge that the Fed is likely to continue tightening by raising US interest rates by 50 basis points and cutting its $9 trillion balance sheet.

The gold market in general is sensitive to a high interest rate environment as it increases the opportunity cost of holding non-return bullion. Moreover, the US Treasury market was up across the board, with the benchmark 10-year bond yield rising 4.6 basis points to 2.961%. Yields on one-year notes rose 3.6 basis points, while yields on 30-year notes jumped 4.6 basis points. The US Dollar Index (DXY) rose to 102.18, from the opening at 101.82. The index measures the performance of the US currency against a basket of major currencies, and it achieved a weekly gain of 0.5%, which raises its rise since the start of the year 2022 to date to 6.5%.

In general, a stronger profit is bad for dollar-priced commodities because it makes them more expensive to buy for foreign investors.

Among other economic data, the US Institute of Supply Management’s (ISM) non-manufacturing purchasing managers’ index fell to 55.9 in May, below market expectations of 56.4. Business activity fell, employment rose, new orders rose, and prices fell.

In other metals markets, copper futures fell to $4.464 a pound. Platinum futures fell to $1013.20 an ounce. And futures contracts for palladium fell to 1975 dollars an ounce.

According to the technical analysis of gold: Despite the recent performance, the price of gold has the opportunity to rebound higher as long as it is stable around and above the resistance 1850 dollars an ounce on the daily chart below. The bulls will need to move towards the resistance levels 1877, 1885 and 1900 dollars, respectively, to confirm the control in gold trend. I still prefer buying gold from every bearish level and the closest and most appropriate buying levels are 1838 and 1820 dollars an ounce respectively. I expect a quiet trading session today.

The pair will likely resume the downward trend in the near term.

Bearish View

• Sell the BTC/USD pair and set a take-profit at 37,000.
• Add a stop-loss at 41,500.
• Timeline: 1-2 days.

Bullish View

• Set a buy-stop at 40,500 and a take-profit at 42,500.
• Add a stop-loss at 37,000.

The BTC/USD pair remained in a tight range as Wall Street attempted to recover. The pair is trading at 39,220, which is slightly above this week’s low of 37,700. It has been in this range in the past few weeks.

Bitcoin and Stocks Correlation

The BTC/USD rebound happened as American stocks attempted to bounce back as the earnings season continued. The Dow Jones added over 430 points while the Nasdaq 100 index rose by more than 195 points. Some of the best performers were tech companies like Microsoft, Visa, and Mastercard.

In the past few months, the correlation of Bitcoin and stocks has been close. For example, Bitcoin has already dropped by about 18% from its highest level this month while Nasdaq 100 has fallen by over 13% in the same period.

Therefore, it can be assumed that the two assets are being driven by the same forces. The most likely catalyst is the change of tune by the Federal Reserve. The bank believes that more rate hikes are needed considering that inflation has surged to the highest level in over 40 years.

The Fed has also hinted that it will start implementing quantitative tightening (QT) in the coming months. This will involve reducing its balance sheet by about $75 billion per month.

Therefore, investors believe that stocks and digital currencies will underperform as the bank unwinds the policies it implemented during the pandemic.

At the same time, on-chain data shows that inflows in Bitcoin have been a bit low in the past few months. Instead, many small investors have used the recent rallies to take profits. Another key event that happened is that the first ETP to combine gold and Bitcoin launched on the SIX Swiss Exchange. The product aims to make BTC a more mainstream asset.

BTC/USD Forecast

The BTC/USD pair has been moving without a well-defined trend in the past few days. The pair remains slightly above the descending trendline shown in orange. It has also formed what looks like a slanted head and shoulders pattern. This pattern is usually a bearish signal. The pair is also below the 25-period and 50-period moving average while the Smart Money Index (SMI) has been moving sideways.

The pair will likely resume the downward trend in the near term. If this happens, the next key support to watch will be the psychological level of 37,000.