EUR/USD. "Smart Money." Bulls Build on Their Success After the Signal

[Ben Graham]

The EUR/USD pair rebounded from the "bullish" imbalance zone 9, which produced another buy signal. Let me remind you that it all started earlier with imbalances 3 and 8, which were also bullish. The pair formed two buy signals, and traders had an excellent opportunity to enter in continuation of the bullish trend at the most favorable price. This long position is currently showing a profit of about 260 points. Traders can decide for themselves what to do next: wait for more profit or close the trade with a solid gain. Personally, I am expecting further growth from the European currency. Over recent months, I have repeatedly drawn traders' attention to an obvious fact: the bullish trend remains intact. Thus, throughout this time I was waiting for a renewed bullish offensive. Now I am waiting for the yearly highs to be tested and for the weekly-chart bearish imbalance to be worked off (visible in the chart).

The chart picture continues to signal bullish dominance. The bullish trend remains in place; reactions to bullish imbalance 3 have been obtained, reactions to bullish imbalance 8 have been obtained, and reactions to bullish imbalance 9 have been obtained as well. Despite a fairly prolonged decline in the European currency, the dollar has failed to break the bullish trend. It had five months to do so and achieved no result. 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.

There was a news background on Tuesday, but we can see that the pair rose throughout Monday and for most of Tuesday even without any relevant data. If the bulls' offensive has begun, they do not need support from the news flow.

The bulls have had plenty of reasons for a renewed offensive for three months already, 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 this year), 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 fully priced in by traders). Thus, in my view, further growth of the pair will be entirely natural.

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. However, I personally believe this is just another "temporary lull." In recent months, the FOMC has been easing monetary policy, which is why there has been no new wave of criticism from Trump. But this does not mean 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 shows the price level below which the bullish trend could be considered over. To reach it, the bears would need to push prices down by about 400 points, and I consider this task unachievable under the current news background and circumstances. The nearest upside target for the European currency remains the weekly-chart bearish imbalance at 1.1976–1.2092, which was formed back in June 2021.

News calendar for the U.S. and the European Union:

• U.S. – Change in initial jobless claims (13:30 UTC).

On December 24, the economic calendar contains only one minor entry. The impact of the news background on market sentiment on Wednesday will be absent.

EUR/USD forecast and trading advice:

In my view, the pair may be in the final stage of the bullish trend. Despite the fact that the news background remains on the bulls' side, bears have attacked more often in recent months. Still, I do not currently see any 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 growth. Traders also had opportunities to open new trend-following long positions after reactions to bullish imbalance 3, after the reaction to imbalance 8, and this week after the rebound from imbalance 9. The growth target for the euro remains the 1.1976 level. Long positions can be kept open, with Stop Loss orders moved to breakeven.

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