FX.co ★ EUR/USD. Smart Money. Bulls Continue to Play with Fire

The EUR/USD pair has been declining for eight consecutive days. At the moment, quotes remain within "bullish" imbalance 9, which allows us to expect a reaction to this pattern eventually. Monday ended with the formation of a "Hammer" candlestick pattern, which is often a precursor to a reversal. It would have been better if this Hammer had simultaneously taken liquidity from a significant swing. However, there are no significant swings in the area of imbalance 9. Thus, I continue to wait for a bullish reaction to imbalance 9; however, invalidation of this pattern would force the conclusion that bearish ambitions are strong. This would not turn the trend bearish, but for some time the bears could seize the initiative. Therefore, only the bulls themselves can save the situation—and they need to do so as quickly as possible, this week. If the bulls manage to restore the euro's positions, then the reaction to imbalance 9 can be considered double.

Two weeks ago, there was a liquidity sweep of the swing from December 16, after which the decline of the euro began. The pair's decline may be completed this week, as bullish imbalance 9 is still a support zone for price. The news background for the dollar this week will be very challenging, and there are all the grounds to expect a retreat by the bears.

The chart picture continues to signal bullish dominance. The bullish trend remains in place, but at the moment traders need new signals. Such a signal can be formed only within imbalance 9. If bearish patterns appear or bullish ones are invalidated, the trading strategy will have to be adjusted. However, at the present time there are no grounds for this.

The news background on Wednesday was quite interesting. By now, two important reports have been released, but they did not show notable values. Within the next half hour to an hour, two more important reports will be published. The Eurozone Consumer Price Index for December matched market expectations at 2%, and the U.S. ADP employment change came in at +41 thousand, which also generally met forecasts. Thus, traders are now waiting for the ISM and JOLTS reports.

The bulls have had plenty of reasons for a new offensive for the past three months, and all of them remain relevant. These include the (in any case) dovish 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, the bleak outlook for the U.S. economy (recession), and the government shutdown (which lasted a month and a half but was clearly not priced 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 Federal Reserve. But personally, I believe this is just another "temporary calm." In recent months, the FOMC has been easing monetary policy, which is why no new wave of criticism has come 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, so I do not even try to do so. The blue line shows the price level below which the bullish trend can be considered finished. The bears would need to push the price down by about 300 points to reach it, and I consider this task impossible under the current news background and circumstances. The nearest upward target for the euro remains the bearish imbalance zone 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:

• Eurozone – Unemployment Rate (10:00 UTC).
• U.S. – Initial Jobless Claims (13:30 UTC).

On January 8, the economic calendar contains only two entries, both of which are not particularly important. The impact of the news background on market sentiment on Thursday may be extremely weak or absent.

EUR/USD Forecast and Trading Advice:

In my view, the pair may be in the final stage of the bullish trend. Despite the fact that the news background remains on the bulls' side, bears have attacked more often in recent months. Still, I see no 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 rise. Opportunities to open new trend-following long positions also appeared when a reaction to bullish imbalance 3 was received, after the reaction to imbalance 8, and then after the bounce from imbalance 9. This week, a second reaction to bullish imbalance 9 may occur. The target for euro growth remains the 1.1976 level. New long trades are acceptable if a new bullish signal is formed. If not, the strategy of buying will have to be reconsidered.