EUR/USD. Smart Money. Bears Show Strength Ahead of the New Year

[Ben Graham]

The EUR/USD pair rebounded from the "bullish" imbalance zone 9 and resumed its growth, simultaneously forming another "bullish" imbalance. Thus, traders have recently received a third consecutive "bullish" signal, and already today or on Friday they may receive a fourth. At present, buy positions from imbalances 3 and 8 are showing profits of about 200 points. Traders can decide for themselves what to do with them next: wait for greater profits or close the trades. Personally, I expect further growth from the European currency and currently do not observe a single sign of a trend change to "bearish."

Last week, there was a liquidity grab from the swing of December 16, which served as the basis for the start of the decline. The decline has been very weak so far, and a liquidity grab is not a pattern—it cannot be used to open trades or draw long-term conclusions. The decline in the pair may already be completed this week, as "bullish" imbalance 10 is also a support zone for the price.

The chart picture continues to signal "bullish" dominance. The "bullish" trend remains intact; a reaction to "bullish" imbalance 3 has been received, a reaction to "bullish" imbalance 8 has been received, and a reaction to "bullish" imbalance 9 has been received. Despite the fairly prolonged decline in the European currency, the dollar has still 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 this.

The news background on Wednesday was absent, and trader activity ahead of the New Year and after Christmas remains minimal.

The bulls have had plenty of reasons for a new offensive for three months already, and all of them remain relevant. These include the "dovish" (in any case) 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 already), weakness in the labor market, bleak prospects for the U.S. economy (recession), and the government shutdown (which lasted a month and a half but was clearly not factored 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 rarely, and Trump himself has stopped criticizing the Fed. But personally, I believe this is just another "temporary calm." In recent months, the FOMC has been easing monetary policy, which is why there has been no new wave of criticism from Trump. However, this does not mean that 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 attempt to do so. The blue line shows the price level below which the "bullish" trend can be considered completed. Bears would need to push the price down by about 400 points to reach it, and I consider this task unachievable under the current news background and circumstances. The nearest growth target for the European currency remains the "bearish" imbalance of 1.1976–1.2092 on the weekly chart, which was formed back in June 2021.

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

On January 2, the economic calendar contains no noteworthy events. The influence of the news background on market sentiment on Friday will be absent.

EUR/USD Forecast and Trading Advice:

In my opinion, the pair may be in the final stage of the "bullish" trend. Despite the fact that the news background remains on the side of the bulls, it has been the bears who 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 a certain amount of growth. Opportunities to open new trend-following buy positions arose when a reaction was received from "bullish" imbalance 3, then after the reaction from imbalance 8, and later after the rebound from imbalance 9. This week, a reaction to "bullish" imbalance 10 may be received. The growth target for the euro remains the 1.1976 level. Buy positions can be kept open with stop losses moved to break-even, or managed at traders' discretion.

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