EURUSD Breakout or Fakeout? Here’s How to Tell

Just yesterday, I wrote how 1.0760 would decide the future direction for the EURUSD.

Thursday’s session closed well above the level and is holding as new support on the 4-hour time frame and higher.

However, given the slow summer conditions and next week’s event lineup, I’m more interested in trading fakeouts (sometimes called deviations) than breakouts.

That’s because follow-through is hard to come by in the summer months, especially when you have events like FOMC and US CPI next week.

So what is a fakeout?

It’s a higher time frame close above or below a level, followed by the same time frame closing in the opposite direction as the breakout.

For instance, EURUSD closed Thursday’s session above 1.0760.

That’s why we’re seeing bulls defend the level on the higher time frames.

But a 4-hour close back below 1.0760 would start to confirm a possible fakeout, leading to a move back to the 1.0670 range lows.

Although I’d feel better with a daily close back below 1.0760, considering we got a daily close above the level on Thursday.

Interestingly enough, the EURUSD formed a similar pattern last Friday.

Note how we got a 4-hour close above 1.0760, followed by a 4-hour close below.

The next candle even retested the key level as new resistance.

Granted, we had non-farm payroll last Friday, which was the catalyst for that fakeout.

But regardless, trading fakeouts like last Friday are among the highest win-rate setups I’ve found in my 10+ years of trading.

The key to any fakeout is waiting for confirmation.

In the case of EURUSD, we need a 4-hour close below 1.0760, at a minimum.

A daily close below the level would be even better and signal a likely return to the 1.0670 range lows next week.

But until we get a sustained break back below 1.0760, the level is serving as support on those higher time frames.

Lastly, a US Dollar Index (DXY) daily close back above 103.50 is needed to signal a weaker euro next week.

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