EUR/USD. Smart Money. The ECB Decided Not to Make Any Decisions

[Ben Graham]

The EUR/USD pair has completed a return to the bullish imbalance 12, and the entire market is now in a waiting mode, anticipating the next directional move. Both currency pairs (EUR/USD and GBP/USD) are currently positioned in a way that allows them to resume a bullish trend, which would be fully justified from both a technical and economic analysis perspective. However, the market does not always move as one might expect. The invalidation of bullish imbalances in the euro and the pound would lead to a decline that I would not recommend traders attempt to trade. Such a decline would complicate the current picture and force traders to wait for the formation of new bullish patterns and corresponding signals.

Expectations for the current week were very high, but in practice traders received little more than nothing. The ECB did not make any important decisions today, and U.S. labor market data were reduced to a single report, which traders usually treat with little enthusiasm. The ADP report showed a very weak reading, but the market prefers to wait for next week's Nonfarm Payrolls to be confident in its conclusions. I would like to remind you that ADP and Nonfarm Payrolls quite rarely show similar figures or even similar dynamics. Therefore, there will effectively be no major events left this week. The resolution of the dilemma has been postponed until next week.

The technical picture continues to signal bullish dominance. The bullish trend remains intact. A bullish signal was formed in imbalance 11, and shortly afterward a new imbalance 12 appeared. Traders should now wait either for a new buy signal within imbalance 12 or for the invalidation of this pattern. The EUR/USD pair is currently at a crossroads: either the trend will logically continue, or it will be put on hold.

Thursday's news backdrop was centered on the ECB meeting, but it was known from the outset that changes to monetary policy parameters were highly unlikely. Despite inflation slowing to 1.7% year-on-year, the ECB needs more time to assess the future trajectory of consumer prices. If the downward trend continues, further policy easing will be inevitable. However, it is too early in early February to draw such conclusions. As a result, no decisions were made, and traders did not react to the event.

Bulls have had more than enough reasons to push higher for the past six to seven months, and these reasons only continue to grow with each passing week. These include the dovish (in any case) outlook for FOMC monetary policy, Donald Trump's overall policy stance (which has not changed recently), ongoing U.S.–China tensions (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 autumn government shutdown (which lasted a month and a half), and a new shutdown that began in February. These factors also include U.S. military aggression toward certain countries, criminal proceedings against Powell, the "Greenland confusion," and worsening relations with Canada and South Korea. Thus, in my view, further growth of the pair would be entirely natural.

I still do not believe in a bearish trend. The news backdrop remains extremely difficult to interpret in favor of the dollar, which is why I am not attempting 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 that level, and I consider this task unrealistic under the current news backdrop and circumstances. The nearest upward target for the euro was the bearish imbalance at 1.1976–1.2092 on the weekly chart, which was formed back in June 2021. This pattern was fully filled last week. Above that, only two levels stand out—1.2348 and 1.2564. These levels represent two peaks on the monthly chart, where price could potentially take liquidity.

Economic Calendar for the United States and the European Union:

• European Union – Change in industrial production volumes in Germany (07:00 UTC)
• European Union – Germany's trade balance (07:00 UTC)
• United States – University of Michigan Consumer Sentiment Index (15:00 UTC)

On February 6, the economic calendar contains three entries, none of which are particularly noteworthy. The impact of the news backdrop on market sentiment on Friday may be weak.

EUR/USD Forecast and Trader Advice:

In my view, the pair remains in the stage of forming a bullish trend. Despite the fact that the news backdrop continues to favor bulls, bears have regularly launched attacks in recent months. Nevertheless, I do not see any 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 saw a certain rise, and the bullish trend remained intact. Last week, a new bullish signal was formed from imbalance 11, once again allowing traders to open long positions with a target of 1.1976. That target was reached. Later, another bullish imbalance—number 12—was formed, and in the near future traders may receive another opportunity to buy.

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