GBP/USD.

[Ben Graham]

The GBP/USD pair continued its upward movement on Tuesday, a process that began back in early November and was renewed last week after the FOMC meeting. The chart picture continues to point to bull dominance, and the bulls are living up to expectations. A total of three buy signals were generated, each of which traders could have traded according to my recommendations. Now all that remains is to wait and observe. On the other hand, the pair shows no significant bearish patterns or strong resistance zones that would suggest a chart reversal in favor of the U.S. dollar. However, the news background could easily turn the pair downward this week—and more than once—since there will be a large number of reports and events. Therefore, traders should remain vigilant and not ignore important releases.

At the moment, the chart picture looks as follows. The bullish trend in the pound may be considered completed, but the bullish trend in the euro is definitely not. Thus, the European currency may pull the pound higher, although sterling itself is also rising quite well. The bulls bounced off bullish imbalance 1, bullish imbalance 10, and bullish imbalance 11. A large number of buy signals were formed. There are no bearish patterns above, and nothing is currently capable of stopping the growth. The only thing that should be done is to monitor possible liquidity sweeps of obvious swing levels.

On Tuesday, the news background was extensive, and at this point only half of the scheduled reports have been released. Meanwhile, the pound has already gained about 70 points. In the UK, data on business activity, unemployment, wages, and unemployment benefit claims were released today. If we ignore the rise in unemployment to 5.1% (which most traders expected), all the other reports showed fairly positive readings. Business activity rose more strongly than forecast. Wages increased by 4.7% instead of the expected 4.4%, which is also positive. The number of unemployment benefit claims came in below forecasts. As a result, bullish traders quite rightly launched a new attack. The key now is that U.S. labor market and unemployment reports, which will be released within the next hour, do not spoil the mood.

In the U.S., the overall information backdrop remains such that, in the long term, nothing but a decline in the dollar can be expected. The situation in the United States remains quite complicated. The government shutdown lasted a month and a half, and Democrats and Republicans have agreed on funding only until the end of January. There has been no U.S. labor market data for a month and a half, and the latest figures can hardly be considered relevant. The last two FOMC meetings ended with dovish decisions; traders are confident that monetary policy easing will continue, and dovish sentiment is now growing even within the FOMC itself. In my view, the bulls have everything they need to continue a new offensive and complete a return to the yearly highs.

A bearish trend would require a strong and stable positive information background for the U.S. dollar, which is difficult to expect under Donald Trump. Moreover, the U.S. president himself does not need a strong dollar, as the trade balance would remain in deficit in that case. Therefore, I still do not believe in a bearish trend for the pound, despite the fairly strong decline that lasted two months. Too many risk factors remain hanging like dead weight over the dollar. The current bullish trend can be considered completed, since prices fell below two lows (from May 12 and August 1), but what exactly are the bears planning to use to push the pound further down? Precisely because I cannot give a convincing answer to this question, I do not believe the decline will continue. If new bearish patterns appear, a potential fall in sterling can be reconsidered.

News Calendar for the U.S. and the UK

United Kingdom – Consumer Price Index (07:00 UTC).

December 17 contains only one entry in the economic calendar, but this release could be decisive for tomorrow's Bank of England meeting. The impact of the news background on market sentiment on Wednesday could be strong, especially in the first half of the day.

GBP/USD Forecast and Trading Advice

The picture for the pound is beginning to look more pleasing to the eye. Three bullish patterns have been worked out, signals have been formed, and traders may continue to hold long positions. I see no informational grounds for a bearish trend in the near future, although this week there may be reasons for a bearish attack—but an attack, not a trend.

The resumption of the bullish trend could already have been expected from imbalance zone 1. At this point, the pound has reacted from imbalance 1, imbalance 10, and imbalance 11. As a target for potential growth, I am considering the 1.3725 level. If bearish patterns form, the trading strategy may need to be revised, but at the moment there are no grounds for that.

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