close icon

Euro Dollar: Genesis of a Fake Breakout

No, the Illuminati did not cause that euro dollar fake breakout

Last Monday, March 27th, the euro dollar Forex pair breached its previous high at 1.0828 and climbed as high as 1.0906. That is what traders usually call a breakout. Taking out a major resistance like this is supposed to serve as a buying signal and an indication that EURUSD is going much higher. But instead of fulfilling the bullish expectations, the European currency quickly lost steam and started declining again. As of this writing, it is trading at 1.0652 against the U.S. counterpart. This is what traders usually call a fake breakout. It describes a situation, when the market first triggers the trading setup and then ruins it by doing the exact opposite of what it was expected to.

One thing breakout traders will not tell you is that fake breakouts happen quite often. Fortunately, with the help of the Elliott Wave Principle, you could learn to anticipate these unpleasant situations and even take advantage of them. Here is how:
elliott wave chart euro dollar 4h march 6th
Nearly a month ago, on March 6th, the above-shown chart was sent to clients. As visible, while the euro dollar exchange rate was hovering around 1.0615, Elliott Wave analysis made us think it “might climb to 1.0900 again, before the bears return.” The reason why we specifically mentioned 1.0900 was the 61.8% Fibonacci level which appeared to be a natural bullish target. Besides, it often serves as a reversal-causing resistance. By the time we had to send the next EURUSD weekly update to clients, the 4-hour chart of EURUSD looked like this:
elliott wave chart euro dollar 4h march 13th
Already at 1.0686 on March 13th, the bulls were just getting started. The situation was developing as planned and all we had to do was stick to the initial idea. If something works, do not fix it, right? 1.0900 was still on the table. A week later, this is how things went:
elliott wave chart euro dollar 4h march 20th
By March 20th, the euro dollar pair was close to 1.0740 with still plenty of room to rise towards 1.0900, where the bears were supposed to return. In other words, it was almost time for a fake breakout. Two weeks forward, here is an updated chart of EURUSD as it is today.
elliott wave chart euro dollar 4h april 4th
The pair could not even touch the 61.8% Fibonacci level. The top occurred slightly lower – at 1.0906 – and gave the start of a slump to as low as 1.0642 as of April 3rd.

In conclusion:

  • With Elliott Wave analysis, you could be weeks ahead of the market
  • You do not have to rely on misleading breakouts
  • You do not have to make a new analysis every day

So, the next time you attach a great meaning to a breakout, remember how easily euro dollar ruined this one. And how the Wave Principle predicted it a whole month earlier.

Stay informed with our newsletter

Latest Elliott Wave analysis on different topics delivered to you weekly.

Privacy policy
You may also like:

GBPUSD To Resume Uptrend Once Correction Ends

The Brexit saga continues as Boris Johnson’s re-election puts Britain firmly on the path of leaving the EU on January 31st 2020. And while the results of the June 2016 referendum caused a crash to 1.1650 by October 2016, GBPUSD is trading near 1.3100 today. The chart below reveals the structure of the recent recovery…

Read More »

GBPCAD Can Reach 1.9000 Before the Bears Return

GBPCAD bulls have been on a roll the past four months. The pair is currently trading above 1.7330, up 9.1% from its early-August low of 1.5875. And while the Forex market is not the place to rely on a trend for very long, it is not uncommon for GBPCAD to make large moves in either…

Read More »

EURAUD Impulse Pattern Keeps the Bulls in Charge

Twenty days ago, EURAUD managed to stop the bleeding and form a bottom at 1.5976. As of this writing the pair trades around 1.6250 after reaching 1.6324 on November 20th. Is the uptrend still in progress or should we prepare for the bears’ return? A look at EURAUD ‘s hourly chart through an Elliott Wave…

Read More »

EURUSD Turns Up Ahead of Brexit Talks Breakthrough

EURUSD is up by 260 pips since the beginning of October. The pair climbed from 1.0879 to 1.1140 in just 14 trading days. The rally appears to be fueled by optimism regarding a possible Brexit deal and the tentative “phase-one” agreement between the US and China. In our opinion, however, there is something more to…

Read More »

USDJPY Pattern Makes More Sense than Politics

The last two weeks were different like night and day for USDJPY traders. The pair fell from 108.47 to 106.48 during the first three days of October and eventually closed the week in negative territory. The last five trading days, on the other hand, told a much different story. Last week, USDJPY rose from 106.66…

Read More »

GBPAUD Elliott Wave Setup Supports the Bears

Between July 30th and August 26th, GBPAUD managed to recover from 1.7561 to 1.8337. Despite the no-deal Brexit prospects, the Australian dollar turned out to be even weaker than its British rival for almost a month. However, GBPAUD is down by roughly 400 pips since August 26th. Traders are probably wondering if this is a…

Read More »

EURUSD Absorbs Economic, Trade War and G-7 News

EURUSD made a new low last week. The pair fell to as low as 1.0963 on Friday adding to the downtrend it has been trading in since February 2018. The last time the European currency traded this low against the greenback was in May 2017. The last few months have been characterized by new lows,…

Read More »

More analyses