EUR/USD. Smart Money. Bulls Prepare for a New Attack

[Ben Graham]

The EUR/USD pair reversed in favor of the European currency earlier this week and began an advance that, over the first two days of the week, retraced most of the decline seen over the past three weeks. During the explosive rise on Monday and Tuesday, a new bullish imbalance was formed, exactly as I had anticipated. Traders now have a new bullish pattern within an ongoing bullish trend. As early as today, this pattern may trigger a price reaction and give traders an opportunity to open long positions. As for the news backdrop, under the current circumstances (in my view), it is not particularly important. Broadly speaking, it remains extremely negative for the U.S. dollar. Thus, the question of further dollar weakness is a matter of time. Our task is simply to closely monitor bullish signals.

Donald Trump has canceled the introduction of 10% tariffs on European countries over non-compliance in the Greenland issue. The new "tariffs on everything" lasted for about five days. Should we now expect the U.S. dollar to strengthen? As I have already said, no. First, the chart setup is not just an interesting picture that traders use to guess price movements—it is a set of powerful tools. If they did not work, no one would use them. In my view, imbalance 11 is currently acting as a support zone, from which bullish traders can easily push higher.

The technical picture continues to signal bullish dominance, albeit from a longer-term perspective. The bullish trend remains intact. A new bullish signal may form as early as today. Therefore, I once again expect growth at least toward 1.1976, the lower boundary of the weekly imbalance.

On Thursday, the news background can again be divided into two parts: economic and political. The economic side once more failed to attract much trader interest. The political side—Trump's cancellation of tariffs and the easing of tensions around Greenland—could have helped bearish traders, but so far it has not. As a result, the bullish imbalance remains in place and the market is awaiting a new bullish signal.

Bulls have had plenty of reasons for a renewed offensive for the past four to five months, and with each passing day, those reasons only increase. These include the (in any case) dovish outlook for FOMC monetary policy, Donald Trump's overall policy stance (which has not changed recently), the ongoing U.S.–China confrontation (where only a temporary truce has been reached), protests by the American public against Trump under the "No Kings" banner, weakness in the labor market, the bleak outlook for the U.S. economy (recession), and the government shutdown (which lasted a month and a half but was clearly not priced in by traders). Now add to that U.S. military aggression toward certain states, the criminal prosecution of Powell, and the "Greenland mess." Taken together, further upside in the pair, in my opinion, appears entirely justified.

I still do not believe in a bearish trend. The news background remains extremely difficult to interpret in favor of the dollar, which is why I do not attempt to do so. The blue line marks the price level below which the bullish trend could be considered finished. Bears would need to push the price down by about 320 pips to reach it, and I consider this task unattainable under the current news backdrop and circumstances. The nearest upside target for the European currency remains the bearish imbalance at 1.1976–1.2092 on the weekly chart, which was formed back in June 2021.

U.S. and Eurozone Economic Calendar:

• Eurozone – Germany Manufacturing PMI (08:30 UTC)
• Eurozone – Germany Services PMI (08:30 UTC)
• Eurozone – Manufacturing PMI (09:00 UTC)
• Eurozone – Services PMI (09:00 UTC)
• Eurozone – Speech by ECB President Christine Lagarde (10:00 UTC)
• United States – Manufacturing PMI (14:45 UTC)
• United States – Services PMI (14:45 UTC)
• United States – University of Michigan Consumer Sentiment Index (15:00 UTC)

On January 23, the economic calendar contains eight events, each of which carries a certain degree of interest. The impact of the news backdrop on market sentiment on Friday may persist throughout the day.

EUR/USD Forecast and Trading Tips:

In my view, the pair remains in the process of forming a bullish trend. Despite the fact that the news background continues to favor bulls, bears have launched regular attacks in recent months. However, I still see no realistic reasons for the start of a bearish trend.

From imbalances 1, 2, 4, 5, 3, 8, and 9, traders had opportunities to buy the euro. In all cases, we observed some degree of growth, and the bullish trend remained intact. Today, a new bullish signal may form from imbalance 11, once again allowing traders to open long positions with a target at 1.1976.

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