EUR/USD. Smart Money. Holiday Festivities Continue

[Ben Graham]

The EUR/USD pair rebounded from the bullish imbalance 9 zone and resumed its upward movement, simultaneously forming another bullish imbalance. As a result, traders have recently received a third consecutive bullish signal, and as early as today or Friday they may receive a fourth. At present, long positions opened from imbalances 3 and 8 are showing profits of around 250 points. Traders can decide for themselves what to do next: wait for greater profits or close positions now. Personally, I expect further growth in the euro and currently see no signs of a trend reversal to the bearish side.

Last week, there was a liquidity grab from the swing dated December 16, which served as the basis for the start of the decline. However, the decline remains very weak, and a liquidity grab is not a pattern—it cannot be used to open trades or draw long-term conclusions. The decline in the pair may already be completed this week, as bullish imbalance 10 also serves as a support zone for the price.

The chart picture continues to signal bullish dominance. The bullish trend remains intact; reactions have been received from bullish imbalance 3, bullish imbalance 8, and bullish imbalance 9. Despite the fairly prolonged decline in the euro, the dollar has failed to break the bullish trend. It had five months to do so and achieved no results. Should bearish patterns or signs of a bullish trend breakdown appear, the strategy can be adjusted. At the moment, however, nothing points to such a scenario.

There was no news background on Tuesday, and trader activity remains minimal ahead of the New Year and after Christmas.

The bulls have had more than enough reasons to launch a new offensive for the past three months, and all of them remain relevant. These include the dovish (in any case) outlook for FOMC monetary policy, Donald Trump's overall policy (which has not changed recently), the US–China confrontation (where only a temporary truce has been reached), protests against Trump (which have swept across America three times this year), weakness in the labor market, the bleak outlook for the US economy (recession), and the government shutdown (which lasted a month and a half but was clearly not fully priced in by traders). Thus, in my view, further growth in the pair is entirely justified.

One should also not overlook Trump's trade war and his pressure on the FOMC. Recently, new tariffs have been introduced less frequently, and Trump has stopped openly criticizing the Fed. However, I personally believe this is just another "temporary calm." In recent months, the FOMC has been easing monetary policy, which explains the absence of renewed criticism from Trump. Nevertheless, this does not mean these factors no longer pose problems for the dollar.

I still do not believe in a bearish trend. The information background remains extremely difficult to interpret in favor of the dollar, and therefore I do not attempt to do so. The blue line marks the price level below which the bullish trend could be considered complete. Bears would need to push the price down by about 400 points to reach it, a task I consider unrealistic under the current news backdrop and circumstances. The nearest upside target for the euro remains the bearish imbalance zone at 1.1976–1.2092 on the weekly chart, which was formed back in June 2021.

US and Eurozone News Calendar

December 31: The economic calendar contains no noteworthy events. The impact of the news background on market sentiment on Wednesday will be absent.

EUR/USD Forecast and Trading Tips

In my view, the pair may be approaching the final stage of its bullish trend. Despite the fact that the information background remains in favor of the bulls, bears have been attacking more frequently in recent months. Even so, I currently see no realistic reasons for the start of a bearish trend.

From imbalances 1, 2, 4, and 5, traders had opportunities to buy the euro, and in all cases we saw some degree of growth. Additional opportunities to open new trend-following long positions appeared when a reaction was received from bullish imbalance 3, then after the reaction from imbalance 8, and later after the rebound from imbalance 9. This week, a reaction to bullish imbalance 10 may occur. The target for euro growth remains the 1.1976 level. Long positions can be kept open with Stop Loss orders moved to breakeven—or managed at the trader's discretion.

The material has been provided by InstaForex Company - www.instaforex.com