EUR/USD. "Smart Money." A New Bullish Signal for the Euro

[Ben Graham]

The EUR/USD pair has indeed bounced off the bullish imbalance 9 zone, giving traders another buy signal. Let me remind you that it all started earlier with bullish imbalances 3 and 8 as well. The pair formed two buy signals, giving traders an excellent opportunity to enter in continuation of the bullish trend at very favorable prices. That long position is now showing a profit of around 200 points. Traders can decide for themselves what to do with it: hold it further or close it with a solid profit. However, I am expecting more upward movement from the euro. Moreover, today—Monday—there is a high probability that another buy signal will form. It has not yet formed, as the daily candle has not closed and price could still decline by the end of the day. Nevertheless, the current chart picture suggests that a reaction to imbalance 9 is still likely.

The chart continues to signal bullish dominance. The bullish trend remains intact; a reaction to bullish imbalance 3 has occurred, and a reaction to bullish imbalance 8 has also occurred. Despite a fairly prolonged decline in the euro, the dollar has still failed to break the bullish trend. It had five months to do so and achieved no result. Two weeks ago, a new bullish imbalance 9 was formed, which now acts as another area of interest and a support zone for the bulls. I would also like to remind once again that if bearish patterns or signs of a breakdown of the bullish trend appear, the strategy can be adjusted. But at the moment, nothing points to that.

The news background on Monday was absent, which did not prevent the bulls from launching another attack. I see nothing strange in this, since the trend is bullish and there is no rule stating that trading is not allowed during holidays. If traders find it convenient and profitable to buy the pair now, what is the problem?

The bulls have had plenty of reasons for a renewed offensive for the past two months, and all of them remain relevant. These include the (in any case) dovish outlook for FOMC monetary policy, Donald Trump's overall policy (which has not changed recently), the confrontation between the U.S. and China (where only a temporary truce has been reached), protests against Trump (which have swept across America three times already this year), weakness in the labor market, bleak prospects for the U.S. 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 opinion, further growth of the pair is entirely justified.

One should also not lose sight of Trump's trade war and his pressure on the FOMC. Recently, new tariffs have been introduced less frequently, and Trump himself has stopped criticizing the Fed. But personally, I consider this yet another temporary calm. In recent months, the FOMC has been easing monetary policy, which is why no new wave of criticism from Trump has followed. However, this does not mean that these factors no longer create problems for the dollar.

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 even try to do so. The blue line marks the price level below which the bullish trend could be considered over. To reach it, the bears would need to push price down by about 360 pips, and they have been unable to overcome a much smaller distance over the past few months. The nearest upward target for the euro remains the bearish imbalance 1.1976–1.2092 on the weekly chart, which was formed back in June 2021.

News Calendar for the U.S. and the Eurozone:

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 noteworthy entries. The impact of the news background on market sentiment on Tuesday is likely to be felt in the second half of the day.

EUR/USD Forecast and Trading Tips:

In my view, the pair may be approaching the final stage of the bullish trend. Despite the fact that the news background remains on the bulls' side, bears have attacked more frequently in recent months. Still, 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. In all cases, we saw some degree of growth. Traders also had opportunities to open new trend-following long positions when a reaction to bullish imbalance 3 was received, as well as after the reaction to imbalance 8. The upside target for the euro remains 1.1976. Long positions can be kept open with Stop Loss moved to break-even. In addition, a new bullish imbalance 9 has been formed, which may give traders another bullish signal as early as today.

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