GBP/USD. Smart Money. The Holidays Have Begun

[Ben Graham]

The GBP/USD pair rebounded from the "bullish" imbalance 11 and resumed its upward move, just as I had anticipated. This is already the second reaction to bullish imbalance 11; the first buy signal was generated last week. At the moment, long positions are already showing a profit of around 400 points by conservative estimates, and traders can decide for themselves what to do next. In my view, the upward move in the pound will continue. However, the market is closed tomorrow, and on Friday we are unlikely to see any interesting movements. Then comes the weekend, three working days, and the New Year. If we do see any market moves during this period, they will not be driven by the news background. I would also note that a new bullish imbalance 12 has formed, which may once again serve as a reason to open new long positions in the future for those traders who did not do so earlier.

The current chart picture is as follows. The bullish trend in the pound can be considered completed, but the bullish trend in the euro has not. Thus, the European currency may pull the pound higher, although the pound itself has been rising quite well in recent weeks. The bulls bounced from bullish imbalance 1, bullish imbalance 10, and twice from bullish imbalance 11. A large number of buy signals were formed. There are no bearish patterns above for the pound—there is nothing to stop the rise. Meanwhile, a new support zone has formed below: imbalance 12. Therefore, I expect growth toward the yearly highs—around the 1.3765 level.

On Wednesday, there was no news background, and this time the bullish traders did not launch an attack. After all, it's also time to celebrate and relax, and tomorrow is Christmas. However, new graphical buy signals may still appear before the end of the year, and the growth itself may continue.

In the U.S., the overall news background remains such that, in the long term, nothing but a decline in the dollar can be expected. The situation in the U.S. remains quite difficult. The 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 push back toward the yearly highs.

A bearish trend would require a strong and stable positive news 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. That is why 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 complete, as prices fell below two lows (from May 12 and August 1), but what will drive the bears to push the pound further down? Precisely because I cannot answer this question, I do not believe that the dollar's decline process will continue. If new bearish patterns appear, a potential decline in the pound sterling can be reconsidered.

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

On December 25, the economic calendar contains no notable events, and the market will be closed. The impact of the news background on market sentiment on Thursday will be absent.

GBP/USD Forecast and Trading Advice:

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

A resumption of the bullish trend could have been expected as early as imbalance zone 1. At this point, the pound has already reacted to imbalance 1, imbalance 10, and imbalance 11. As a potential upside target, I am considering the 1.3725 level, although the pound could rise much higher—albeit already next year. If bearish patterns form, the trading strategy may need to be reconsidered, but for now I see no reason to do so.

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