GBP/USD. Smart Money. A New Buy Signal Has Appeared

[Ben Graham]

The GBP/USD pair has rebounded from the bullish imbalance 12 zone, which is a new signal for long (buy) positions. Despite last week's decline in the pound, the bullish trend remains intact, and bulls continue to dominate the market. Monday could have damaged the technical picture for the bulls, but that was avoided. Now all the cards are in the hands of pound buyers, and all that remains is to hope for weak US economic data on Wednesday and Friday. In my view, the probability of this is quite high. I would also note that there are currently no bearish signs or signals. There are no bearish patterns, and there have been no liquidity grabs from bullish swings either.

The bullish imbalance 12 is currently the only valid and functioning pattern. If it is invalidated, this will not immediately cancel the bullish trend; it would only delay the next upward move in the pound. Of course, traders are interested not in pauses but in trends. However, over the remaining three days of the week, much will depend on US economic data. Let me remind you that traders' main concerns are the US labor market and unemployment rate. The worse the reports on these indicators, the higher the chances of seeing another bullish offensive.

The technical picture is currently as follows: the bullish trend in the pound could be considered completed, but the bullish trend in the euro has not. Therefore, the euro may continue to pull the pound higher for as long as necessary — or vice versa. Bulls have already bounced from bullish imbalance 1, bullish imbalance 10, bullish imbalance 11 twice, and now from bullish imbalance 12, which is also bullish. As a result, I continue to expect growth toward the 2025 highs, around the 1.3765 level.

On Tuesday, the fundamental background was very weak, so today can be viewed as a temporary pause. The pound may retrace slightly lower, but the buy signal has already formed. What should we expect from the pair when a fourth consecutive bullish signal has appeared and the early-week news flow did not support the bears?

In the US, the overall fundamental backdrop remains such that nothing but long-term dollar weakness can be expected. The situation in the United States remains quite complicated. 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 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 latest labor market data allows for a fourth consecutive round of monetary easing in January. In my view, bulls have everything they need to continue their offensive and push prices back toward the yearly highs.

A bearish trend would require a strong and consistently positive news background for the US dollar, which is difficult to expect under Donald Trump. Moreover, the US president himself does not need a strong dollar, as this would keep the trade balance in deficit. 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 weigh heavily on the dollar. What would bears use to push the pound lower if a bearish trend were forming now? If new bearish patterns appear, a potential decline in the pound sterling can be reconsidered.

News Calendar for the US and the UK:

• United Kingdom – Construction PMI (09:30 UTC)
• United States – ADP Employment Change (13:15 UTC)
• United States – ISM Services PMI (15:00 UTC)
• United States – JOLTS Job Openings (15:00 UTC)

January 7 features four economic events on the calendar, three of which are important. The impact of the news background on market sentiment on Wednesday 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. Four bullish patterns have played out, buy signals have formed, and traders can maintain long positions. I see no fundamental reasons for a strong decline in the pound in the near term.

The resumption of the bullish trend could already have been anticipated from imbalance zone 1. At this point, the pound has reacted to imbalance 1, imbalance 10, imbalance 11, and imbalance 12. As a potential upward target, I am looking at the 1.3725 level, though the pound may rise much higher. If bearish patterns emerge, the trading strategy may need to be revised. For now, however, nothing points to a potential bearish advance.

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