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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.



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