The NZDUSD has been churning higher since the May low at 0.6818. Just when it looked like the rally was tiring on July 11th, the pair went on to gain another 350 pips.
But those gains were short lived as August has so far delivered a loss of 200 pips. With the pair back below the late June highs at 0.7345, the NZDUSD has taken on a shape that could produce a move lower over the coming weeks.
The rally that began in May followed by August’s downturn has formed what could be a head and shoulders pattern. But as long as the pair trades above the neckline support near 0.7240/50, the upward bias cannot and should not be dismissed.
It’s going to take a daily close (5 pm EST) below the neckline to confirm the topping pattern. Such a break would also expose the measured objective near 0.6880.
At first glance, the price action in early May doesn’t appear to have respected the 0.6880 handle. However, if you move out to a weekly chart, you will notice that 0.6880 has been a key factor since October of 2015.
I’ll be keeping a close eye on the NZDUSD next week. A daily close below support near 0.7240/50 could present a favorable opportunity to get short.
Alternatively, a close above 0.7345 would hint at an extended move higher, but as long as the 2017 high stands at 0.7558, the formation in the chart below remains a threat to buyers.
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