GBP/USD. Smart Money. A Gift for Traders Under the Christmas Tree

[Ben Graham]

The GBP/USD pair bounced off bullish imbalance 11 and resumed its upward movement, just as I had anticipated. The reaction to bullish imbalance 11 turned out to be double. At the moment, buy trades are already showing a profit of around 400 pips by the most conservative estimates, and traders can decide for themselves what to do with them next. In my view, the bullish trend has not ended, and the offensive that began in the first ten days of November is not over. There is not a single workable bearish pattern on GBP that would even suggest a potential decline in prices.

Last week, another bullish imbalance was formed, and the price is now moving toward this pattern. Thus, already today or tomorrow the price may react to it, and traders may receive a new bullish signal. Of course, the signal still has to form, but everything is pointing in that direction. Above, the bulls face virtually no significant resistance zones. Naturally, this does not mean that a decline in the pound is impossible. However, to identify a potential drop, signals are also needed. At the moment, there are no bearish patterns, no reactions to bearish patterns, and no liquidity grabs from bullish swings.

The current chart picture is as follows. The bullish trend in the pound can be considered complete, but the bullish trend in the euro is not. Thus, the euro may pull the pound upward with it, although the pound itself has been rising quite well in recent weeks. Bulls have bounced from bullish imbalance 1, from bullish imbalance 10, and twice from bullish imbalance 11. A large number of buy signals have been formed. A new support zone has formed below—imbalance 12. Therefore, I still expect growth toward the yearly highs, around the 1.3765 level.

There was no news background on Monday. However, new chart-based buy signals may still appear before the end of the year, and the rally itself may continue. For many Europeans and Americans, New Year's Day as a holiday has a lower priority than Christmas.

In the United States, the overall informational 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 government shutdown lasted a month and a half, and Democrats and Republicans agreed on funding only 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 called positive for the dollar. The last three FOMC meetings ended with dovish decisions, and the latest 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 the new offensive and return to the yearly highs.

A bearish trend requires a strong and stable positive informational background for the U.S. dollar, which is hard to expect under Donald Trump. Moreover, the U.S. president himself does not need an expensive dollar, since 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 in September and October. Too many risk factors remain hanging like dead weight over the dollar. What are the bears supposed to use to push the pound further down if a bearish trend is supposedly forming now? I cannot answer that question, which is why I do not believe the process of dollar strengthening 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 30, the economic calendar contains no noteworthy events. The impact of the news background on market sentiment on Tuesday will be absent.

GBP/USD Forecast and Trading Advice:

For the pound, the picture is beginning to look more pleasing to the eye. Three bullish patterns have been worked out, signals have been formed, and traders can continue to hold buy positions. I see no information grounds for a strong decline in the pound in the near future.

The resumption of the bullish trend could have been expected as early as from imbalance zone 1. At this point, the pound has reacted to imbalance 1, imbalance 10, and imbalance 11. As a potential upward target, I am considering the 1.3725 level, though the pound may rise much higher—albeit next year. If bearish patterns form, the trading strategy may need to be revised, but this week it is more likely that another bullish signal will be received from imbalance 12.

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