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The GBP/USD pair completed a reversal in favor of the U.S. dollar and returned to the "bullish" imbalance 11 after liquidity was taken from the previous swing. And that's where all movement ended. The reaction to this pattern was seen last week, but there is nothing wrong with a second or even third execution of the same pattern. Let me remind you that imbalances can be filled by 50% or even 100%. Sometimes this requires several attempts. Thus, in the near future the price may bounce off the imbalance, push deeper into it, then reverse, take liquidity from the last "bearish" swing, and then reverse again. Only if the imbalance is invalidated will I consider a scenario of a serious decline or a "bearish" trend. For now, however, there is no reason for concern, as the price has been trading in a tight range for several days.
At the moment, the picture is as follows. The "bullish" trend in the British pound can be considered complete, but the "bullish" trend in the euro most certainly is not. Thus, the European currency may pull the pound higher, although the pound itself has been performing quite well in recent weeks. Bulls bounced off "bullish" imbalance 1, "bullish" imbalance 10, and "bullish" imbalance 11. A large number of buy signals were formed. The market is currently in a pause, even though the news background this week allowed for expectations of high trader activity. There are no "bearish" patterns above the market for the pound—there is nothing to stop further growth. The only thing worth noting is the taking of "bearish" liquidity, which may lead to a corrective pullback. However, a new "bullish" signal may form inside imbalance 11.
On Friday, the UK released a retail sales report that made traders yawn. I would note that price action this week has been fairly weak. I was expecting a much stronger market reaction to the large amount of information from the UK and the U.S. But traders reacted quite sluggishly to U.S. inflation, UK inflation, the ECB and Bank of England meetings, Nonfarm Payrolls, and the unemployment rate. Therefore, expecting the market to suddenly become active on retail sales data was na?ve.
In the U.S., the overall news background 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 only agreed on funding through 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 most recent labor market data allows for a fourth consecutive easing of monetary policy in January. In my view, the bulls have everything they need to launch a new offensive and return prices to the highs of the year.
A "bearish" trend would require a strong and stable positive news background for the U.S. dollar, which is hard 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. Therefore, I still do not believe in a "bearish" trend for the pound, despite the fairly strong decline that lasted two months. Too many risk factors remain hanging like dead weight on the dollar. The current "bullish" trend can be considered complete, as quotes fell below two lows (from May 12 and August 1), but what exactly are the bears going to use to push the pound further down? Precisely because I cannot give a clear answer to this question, I do not believe the decline will continue. If new "bearish" patterns appear, a potential decline in the pound sterling can be reconsidered.
News Calendar for the U.S. and the UK
United Kingdom:
On December 22, the economic calendar contains only one entry, which is of little interest. The impact of the news background on market sentiment on Monday may be extremely weak.
GBP/USD Forecast and Trading Advice
For the pound, the picture is starting to look more pleasing to the eye. Three "bullish" patterns have been worked out, signals have been formed, and traders can maintain buy positions. I see no informational grounds for a "bearish" trend in the near future.
A resumption of the "bullish" trend could have been expected as early as from imbalance zone 1. At this point, the pound has already reacted to imbalance 1, imbalance 10, and imbalance 11. As a target for potential growth, I am considering the 1.3725 level. If "bearish" patterns form, the trading strategy may need to be revised, but in the near term only a new "bullish" signal may appear—namely, liquidity taking and a second execution of the "bullish" imbalance 11.
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