EUR/USD: Mother of False Breakouts (at least right now)

I used to include a caption below my name when I wrote an analysis, that caption was: “Remember, False Breakouts are Tradable Too!”

It was meant to be a reminder that just because a trade looks like it may not be working out, does not mean there isn’t money potential there.  In fact, false breakouts are especially powerful signals for the exact reason that many people just got proven wrong in their trade decision.  Make no mistake, in every transaction that take place someone is going to be right and someone is going to be wrong across time frames, but at pivotal levels more transactions are drawn into the market place which creates buyers/sellers who are more aggressive to get into positions and then to get out of positions.  Sellers were more aggressive on Thursday, Buyers were more aggressive on Friday.

Thursday saw a drop below support and this indicated another leg down in the downtrend.   If that move was missed confirmation was needed to enter a position and that confirmation would have come with a drop below 1.3200, Thursday’s low (see Euro Sell Off Breaks Swing Lows).  Alas that did not come, and a rise back above the “breakout” line indicated a false breakout.   This has been all too common in this pair over the last two and half months.

Bias has been to the downside through almost the entirety of this period (upward trendline was broken recently as well but quickly corrected as well) but reversals have been sharp and generally clear out logical stop levels.  This too is not uncommon but with volatility overall decreasing and trending moves moving less in magnitude the pair is not acting like its normal “trending tendency” self.

This too has been discussed multiple times over the last two and half months.  This choppy trading and more ranging environment is not historically typical for long periods of time.  Longer term trend traders are advised to say out until a trend emerges.  Swing traders and day traders may enjoy this trading environment if they incorporate trading false breakouts.

So where does the EUR/USD stand in terms of future movement?  A move below 1.3200 has a target of 1.3000 followed by 1.2700.

On the upside, a move above 1.3700 followed by 1.3800 would break up the range, highs providing a target between 1.4200-1.4300.

With weekly average movement of just over 300 pips the upper targets are out of range this week, but the first lower target is possible…but so is the swing high at 1.3700 and/or 1.3800.   The pair closed out the week at 1.3383.

I will say it one more time….  False breakouts remain highly likely.

Cheers,

Cory Mitchell, CMT
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In relation to the analysis above….

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