GBP/USD. Smart Money. New Year's Calm Accompanied by the Pound

[Ben Graham]

The GBP/USD pair has rebounded from the bullish imbalance 11 and resumed its upward movement, just as I had warned. At the moment, long positions are showing profits of around 400 points, and traders can decide for themselves what to do with them next. In my view, the bullish trend has not been completed; the advance that began in the first ten days of November is not over. There are no viable bearish patterns on the pound from which a bearish attack could be expected. On the contrary, another bullish pattern has appeared, which could serve as a base for a new bullish offensive — most likely as early as next year.

Last week, another bullish imbalance was formed, and the price is now moving toward this pattern. As a result, today or tomorrow the price may react to it, giving traders a new bullish signal. I would like to note that an imbalance pattern usually consists of three candles, but in our case it can be considered to consist of four. Let me remind you that an imbalance is a "price slip." The chart clearly shows that it took up two daily candles, which the price literally flew through. Above the current price, the pound has virtually no significant resistance zones. Thus, 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 may be considered complete, but the bullish trend in the euro is not. Therefore, the European currency can continue to pull the pound upward for as long as necessary. The bulls bounced off bullish imbalance 1, bullish imbalance 10, and twice from bullish imbalance 11. A large number of buy signals were formed. A new support zone has appeared below — imbalance 12. As a result, I still expect growth toward the yearly highs, around the 1.3765 level.

There was no news background on Tuesday. New graphical buy signals may still appear before the end of the year, but I would not rely too much on that — market movements are currently too weak.

In the US, the overall news background remains such that nothing other than a decline in the dollar can be expected in the long term. The situation in the US remains quite challenging. The shutdown lasted a month and a half, and Democrats and Republicans have agreed on funding only until the end of January. There has been no US 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 allows for a fourth consecutive round of monetary easing in January. In my opinion, the bulls have everything they need to continue a new offensive and return to the yearly highs.

A bearish trend would require a strong and consistently positive news background for the US dollar, which is hard to expect under Donald Trump. Moreover, the US president himself does not need a strong dollar, as 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 sharp decline in September and October. Too many risk factors continue to weigh heavily on the dollar. What would allow the bears 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 dollar's decline has been completed. If new bearish patterns appear, a potential fall in the pound can be reconsidered.

US and UK News Calendar

December 31: The economic calendar contains no noteworthy events. The impact of the news background on market sentiment on Wednesday will be absent.

GBP/USD Forecast and Trading Tips

The outlook for the pound remains favorable for traders. Three bullish patterns have already played out, signals have been formed, and traders can continue to hold long positions. I see no fundamental reasons for a sharp decline in the pound in the near future.

A resumption of the bullish trend could have been expected as early as from imbalance 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, although the pound may rise much higher — though most likely next year. If bearish patterns form, the trading strategy may need to be revised, but this week, another bullish signal from imbalance 12 is more likely.

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