GBP/USD. "Smart Money." The Pound Is Not Going to Lag Behind the Euro

[Ben Graham]

The GBP/USD pair has made a return to the bullish imbalance 11 after liquidity was taken from the last bullish swing. That marked the end of all bearish attacks. A second reaction to bullish imbalance 11 followed, thus generating another buy signal as early as last week. In fact, I usually do not take such signals into account. If an imbalance has already been worked off (no matter to what extent), then in the future I am only interested in signals combined with liquidity grabs. This time there was no sweep of bearish liquidity, but what difference does it make if a few days earlier another bullish signal had already formed in the same bullish imbalance 11? Therefore, traders can continue to hold long positions, as I do not observe any clear signs that the bulls' advance is coming to an end.

The current chart setup is as follows. The bullish trend in the pound may be considered complete, but the bullish trend in the euro certainly is not. Thus, the euro can pull the pound upward, although the British currency itself has been rising quite well in recent weeks. The bulls have bounced off bullish imbalance 1, bullish imbalance 10, and bullish imbalance 11. A large number of buy signals have been formed. The market is currently in a pause, even though last week's news background allowed for high trading activity. There are no bearish patterns above for the pound, and nothing is stopping further growth.

On Monday, the UK released its third-quarter GDP report, which showed a flat, neutral reading that exactly matched traders' expectations. Therefore, the bulls' attacks on Monday are unlikely to be related to this report. Apart from that, no major events are expected today, but tomorrow a couple of U.S. reports will be released that may attract traders' attention. These reports will effectively be the last ones this week.

In the United States, the overall news background remains such that, in the long term, nothing but a decline of the U.S. dollar can be expected. The situation in the U.S. remains quite complicated. The government shutdown lasted a month and a half, and Democrats and Republicans 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 positive for the dollar. The last three FOMC meetings ended with dovish decisions, and the most recent labor market data allow for a fourth consecutive easing of monetary policy in January. In my view, the bulls have everything they need to continue a new offensive and return to the yearly highs.

For a bearish trend, the U.S. dollar would need a strong and stable positive news background, which is hard to expect under Donald Trump. Moreover, the U.S. president himself does not need an expensive 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 continue to hang like dead weight on the dollar. The current bullish trend can be considered complete, as prices fell below two lows (from May 12 and August 1), but what exactly are the bears going to use to push the pound further down? Precisely because I cannot give a clear answer to this question, I do not believe that the decline will continue. If new bearish patterns appear, a potential fall in the pound can be reconsidered.

Economic Calendar for the U.S. and the UK:

United States

• Change in Durable Goods Orders (13:30 UTC)
• GDP Change, second estimate for Q3 (13:30 UTC)
• Change in Industrial Production (13:30 UTC)

On December 23, the economic calendar contains three entries that are of some interest. The impact of the news background on market sentiment on Tuesday may be present, but mainly in the second half of the day.

GBP/USD Forecast and Trading Tips:

For the pound, the picture is beginning to look more pleasing. Three bullish patterns have been worked out, signals have been formed, and traders can maintain long positions. I see no fundamental reasons for a bearish trend in the near future.

The resumption of the bullish trend could already have been expected from imbalance zone 1. At the moment, the pound has reacted to 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 for now I see no reason to make any adjustments.

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