EURUSD Flies Past Resistance, Forms Bullish Pennant: Keep Tabs On These Levels

Summary:
• EURUSD enjoyed a bullish run yesterday and broke critical resistance. With a bullish pennant on the 1-hour chart, is there a bigger rally ahead?

Remember the falling trendline I pointed out on EURUSD yesterday? It was completely invalidated when the currency pair rallied to its two-week highs at 1.0971. Today is going to be a quiet day with most of Europe on break for the Labor Day holiday. We do, however, have the US ISM manufacturing report on deck which could spark volatility on EURUSD. Can the currency pair extend its gains?

Considered as a leading indicator of economic health, the US ISM Manufacturing report aims to provide a gauge of how industry leaders feel about current business conditions. The forecast is at 36.7. This reading is significantly lower than the 50.0 baseline reading which indicates expansion. Consequently, it indicates that managers are not optimistic about economic conditions.

With this, a better-than-expected reading could strengthen the dollar and push EURUSD lower. On the other hand, a disappointing figure could weaken the dollar and trigger a rally on the currency pair.

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EURUSD Outlook

On the 4-hour time frame, it can be seen that EURUSD has broken resistance at the falling trend line (from connecting the highs of March 27 and April 15). With this, it can be assumed that buyers are dominating trading on EURUSD.

The hourly chart also supports this bullish bias. Following yesterday’s strong rally, the currency pair has spent the last few hours trading within a tight consolidation. Consequently, a bullish flag chart pattern has materialized. This is widely considered as a bullish continuation signal. A close above yesterday’s high at 1.0970 could trigger a bigger rally. The next resistance could be at 1.1005 where the 100 SMA is on the daily time frame.

On the other hand, a close below the bottom of the consolidation at 1.0919 could mean that there are still sellers in the market. EURUSD could then fall to the confluence of support around 1.0885. This price coincides with the 61.8% Fib level (when you draw from yesterday’s low to its swing high), the 100 SMA, and the rising trend line (from connecting the lows of April 24 and April 30).