GBP/USD. Smart money

[Ben Graham]

The GBP/USD pair has returned to the "bullish" imbalance 12, and now both currency pairs (EUR/USD and GBP/USD) should be expected to react to bullish patterns. Thus, despite the decline in the pound's quotes over the past few days, the bullish trend remains intact, and the bulls continue to dominate the market. There is no talk of invalidating imbalance 12 at this stage, and corrective pullbacks can vary in size. I see nothing alarming even if the pound drops back to imbalance 11, sweeps liquidity from the swings of December 9 and December 17, and then starts a new upward move.

Last week, another bullish imbalance 12 was formed, and the price is currently working it off. Therefore, the price may react to it as early as today, and traders may receive a new bullish signal. I would like to note that the "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 "slippage." On the chart, it is clearly visible that it spanned two daily candles, which the price literally flew through to the upside. Above the pound, there are practically 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 could be considered completed, but the bullish trend in the euro is not. Therefore, the European currency can pull the pound upward for as long as necessary. The bulls have bounced off bullish imbalance 1, bullish imbalance 10, and bullish imbalance 11 twice. A large number of buy signals have been formed. A new support zone has formed below — imbalance 12. Thus, I still expect growth toward the yearly highs, around the 1.3765 level.

There was no significant news background on Friday. At the start of the new year, new chart-based buy signals may emerge, allowing traders to once again open long positions.

In the United States, the overall news backdrop 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 challenging. The government 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 latest labor market data allows 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 to form, the dollar would need a strong and stable positive news background, which is difficult to expect under Donald Trump. Moreover, the U.S. president himself does not need an expensive 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 strong decline in September and October. Too many risk factors continue to hang like dead weight 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 this question, which is why I do not believe that the process of dollar decline will stop. If new bearish patterns appear, a potential decline in the pound sterling can be reconsidered.

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

• U.S. – ISM Manufacturing PMI (15:00 UTC).

On January 5, the economic calendar contains one entry that can be considered important and significant. The impact of the news background on market sentiment on Monday will be felt in the second half of the day.

GBP/USD forecast and trading advice:

The outlook for the pound remains favorable for traders. Three bullish patterns have been worked off, signals have been formed, and traders can continue to hold long positions. I see no informational grounds for a sharp decline in the pound in the near future.

The resumption of the bullish trend could have been expected as early as the imbalance 1 zone. At the moment, 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. 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 generated from imbalance 12.

The material has been provided by InstaForex Company - www.instaforex.com