EUR/USD. Smart Money. Free Fall of the Dollar

[Ben Graham]

The EUR/USD pair continues its upward movement. As expected, any bearish attacks have extremely limited potential, and the bullish trend remains intact. Within a bullish trend, traders should focus primarily on bullish patterns and buy signals. Last week, another bullish imbalance was formed, and almost immediately a buy signal appeared in the form of a reaction to this imbalance. Thus, traders once again had an excellent opportunity to open positions, which are already showing profits of around 220 points. Only 50 points remain to reach the target I have been discussing over the past few months.

Of course, Donald Trump deserves the credit for the latest decline of the dollar. Throughout last week, traders paid no attention at all to economic reports. The peak of this disregard was the release of the U.S. Q3 GDP report, which showed a stronger-than-expected result. Donald Trump first introduced trade tariffs on EU countries and then canceled them, but in both cases traders saw only negative signals. In my view, they interpreted the situation absolutely correctly, because such chaos means only one thing: the decisions of the U.S. president (of the world's largest economy, let me remind you) are worth nothing. Today Trump may impose tariffs, tomorrow he may cancel them. Today Trump may declare readiness to seize Greenland by force, and tomorrow he may change his mind. Today Trump has grievances with Europe, tomorrow with China, the day after tomorrow with Canada. Markets cannot understand what to expect from Trump and therefore price in the worst-case scenario. As a result, they prefer to get rid of the U.S. currency whenever there is a convenient opportunity.

The chart picture continues to signal bullish dominance, but from a long-term perspective. The bullish trend remains intact despite the sideways movement seen over recent months. A new bullish signal was formed at imbalance 11, which allows expectations of growth at least to 1.1976 (the lower boundary of the weekly imbalance). Yesterday, another bullish imbalance was formed, from which buy positions can also be opened going forward.

The news background on Monday gave traders new food for thought. Donald Trump threatened to impose 100% tariffs on Canada if it continues free trade with China. As we can see, in the headline "Trump attacks," one only needs to substitute the name of the relevant country each week. On Monday, the dollar fell moderately, and on Tuesday it continued to decline.

Bullish traders have had plenty of reasons for renewed advances for the past 4–5 months, and with each new day those reasons only increase. These include the dovish (in any case) outlook for FOMC monetary policy, Donald Trump's overall policy (which has not changed recently), the U.S.–China confrontation (where only a temporary truce has been reached), protests by the American public against Trump under the "No kings" banner, weakness in the labor market, bleak prospects for the U.S. economy (recession), the government shutdown that lasted a month and a half, and a new shutdown that could begin as early as Sunday. And now this also includes U.S. military aggression toward certain states, criminal prosecution of Powell, the "Greenland confusion," and a trade war with Canada. Thus, in my opinion, further growth of the pair is entirely logical.

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 could be considered complete. Bears would need to push the price down about 460 points to reach it, and I consider this task impossible given the current news background and circumstances. The nearest upward target for the European currency remains the bearish imbalance at 1.1976–1.2092 on the weekly chart, which was formed back in June 2021.

News Calendar for the United States and the European Union:

• European Union – GfK Consumer Confidence Index in Germany (07:00 UTC)
• United States – Federal Reserve interest rate decision (19:00 UTC)
• United States – FOMC press conference (19:30 UTC)

On January 28, the economic calendar contains three events, two of which are important. The impact of the news background on market sentiment on Wednesday may be significant.

EUR/USD Forecast and Trading Advice:

In my view, the pair remains in the process of forming a bullish trend. Despite the fact that the news background remains on the side of the bulls, bears have regularly launched attacks in recent months. However, I still see no realistic reasons for the start of a bearish trend.

From imbalances 1, 2, 4, 5, 3, 8, and 9, traders had opportunities to buy the euro. In all cases, we observed some growth, and the bullish trend remains intact. Last week, a new bullish signal was formed from imbalance 11, once again allowing traders to open buy positions with a target of 1.1976 (not the final target, but the minimum). This week, another bullish imbalance was formed. I remain bullish in my outlook.

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