There's a difference between receiving data and interpreting data. The allies were aware of significant troop movements - including daily reports on Luftwaffe readiness and attempts to bring Panzer divisions east of the Rhine and back to full strength - but there was initially little indication whether this would crystallize into counterattack, a bold new offensive or simply Germany preparing its defensive line.

On the whole Allied intelligence favoured the defensive reading of events because of the sheer scare of the withdrawal from the frontline of so many SS Panzer divisions and heavy tank battalions, and from this point it could be argued that confirmation bias set in, favouring a German counterattack around Cologne.

Evidence to the contrary began to drip-drip through: Panzer division started moving west of the Rhine, nocturnal convoys were spotted, bombers were refitted for close ground attack, and requests were intercepted for a full aerial reconnaissance of all the bridges over the Meuse River, and so on and endlessly on.

With the considerable benefit of hindsight there's a lot of red flags that were decrypted but their grim significance missed - including a request for men with a working knowledge of American slang and idioms - but even the more alert SHAEF interpreted an Ardennes offensive as unlikely, or merely a 'spoiling attack' designed to support a more significant operation further North.

On a tactical level, observers on the ground (such as Eisenhower) fretted about how vulnerable the Ardennes appeared, but were reassured or rebuffed with the insistence that it would either be a sideshow, wouldn't happen at all, or reinforcements would quickly be able to outflank the enemy.

Some credit needs to go to the Germans: there was a more guarded use of radio information and while unaware of the scope of Bletchley Park's codebreaking operations, they reinforced the Cologne theory by ensuring that air support requests in the north outnumber similar requests for the Ardennes by three-to-one. (I also read somewhere that as the German front constricted, they began to revert to written orders but I can't find the reference so I'm not prepared to come out and claim this was a factor).

Ultimately though, no German deception campaign would have worked without their most able ally - self-deception.

To put it in broad brushstrokes: Confirmation bias was operating on the ground with SHAEF disregarding the fears of field commanders, and in the intelligence community who had such giddy faith in ULTRA that the lack of a broadcasted intention to strike at Ardennes was taken as a lack intention to strike at Ardennes.

EDIT: I referred to ULTRA as "ULTIMA" which as we all know was the ersatz codebreaking machine in '80s Doctor Who classic The Curse of Fenric. This realisation makes me want to doublecheck literally everything I've ever written on the internet.

Sources: The Battle of the Bulge 1944: Hitler's Last Hope by Robin Cross and The Battle of the Bulge: Hitler's Final Gamble by Patrick Delaforce