GBP/USD. Smart Money. Waiting for a New "Bullish" Signal

[Ben Graham]

The GBP/USD pair rebounded from the "bullish" imbalance 11 and resumed its growth, just as I had expected. The reaction to bullish imbalance 11 was twofold: the first buy signal was generated back last week. At this point, long positions are already showing a profit of about 400 pips by the most conservative estimates, and traders can decide for themselves how to manage them going forward. The market was closed on Thursday and reopened on Friday, but activity is virtually nonexistent. There is no news background, and the desire to trade on a day "detached" from the others is unlikely to arise for traders on the last day of the week. Nevertheless, I expect the growth of the pound to continue further. I would note that this week a new bullish imbalance 12 was formed, which may in the future serve as a reason to open new buy positions for those traders who did not do so earlier. And if the pound reacts to this pattern, it will already be the fourth bullish signal in a row.

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 upward, although the pound itself has been growing quite well in recent weeks. Bulls bounced from bullish imbalance 1, from bullish imbalance 10, and twice from bullish imbalance 11. A large number of buy signals have been formed. There are no bearish patterns above the current price for the pound—there is nothing to stop the rise. At the same time, a new support zone has formed below—imbalance 12. Therefore, I assume growth toward the yearly highs, around the 1.3765 level.

There was no news background on Friday. However, new graphical buy signals may emerge before the end of the year, and the rally itself may continue next week. For many Europeans and Americans, New Year's as a holiday is of lower priority than Christmas.

In the U.S., the overall news background remains such that nothing but a decline in the dollar can be expected in the long term. The situation in the United States remains quite difficult. The shutdown lasted a month and a half, and Democrats and Republicans have only agreed on funding through 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, a strong and stable positive news background for the U.S. dollar is needed, which is difficult to expect under Donald Trump. Moreover, the U.S. president himself does not need a strong dollar, as in that case the trade balance would remain in deficit. Therefore, I still do not believe in a bearish trend for the pound, despite the rather strong decline that lasted two months. Too many risk factors continue to weigh heavily on the dollar. The current bullish trend can be considered completed, 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 process of dollar decline will continue. If new bearish patterns appear, a potential decline in the pound can be reconsidered.

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

On December 29, the economic calendar contains no noteworthy events. The impact of the news background on market sentiment on Monday will be absent.

GBP/USD forecast and trader advice:

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

A resumption of the bullish trend could have been expected already from the imbalance 1 zone. At this point, the pound has reacted to imbalance 1, imbalance 10, and imbalance 11. As a potential growth target, I am considering the 1.3725 level, although the pound may rise much higher—albeit 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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