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NZDUSD Rally Hints at 480 Pip Reversal Pattern

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There’s no doubt that the NZDUSD is still in an uptrend, especially after yesterday’s impressive 104 pip rally. The ascending channel that extends from the current 2016 low at 0.6346 is still intact which is preventing sellers from getting too comfortable.

However, given that this year’s channel is coming off a massive 2,600 decline between July of 2014 and August of 2015, my medium to long-term outlook remains bearish. Of course, that doesn’t mean we won’t see rallies along the way, yesterday’s session being an excellent case in point.

I’ve commented on the ten-month ascending channel on this site several times over the past few months, so that’s no surprise.

Here it is again on the daily chart for those who missed it.

nzdusd-ascending-channel

But with yesterday’s move comes the beginning of what could be a red flag for would-be buyers. While it’s still at a very early stage, the price structure below is at least worth keeping on your radar as things progress.

Also, note that yesterday’s session hit a high of 0.7309. Last month’s high—which was set on the 4th of October—is 0.7310.

Now, I’m not insinuating that this area will hold, but what I am watching very carefully is how this area lines up with swing highs from July. And when we take a step back and view the last five months of price action, this is beginning to take the shape of a head and shoulders pattern.

Because this is considered an early stage formation, it’s all very speculative, so there is no basis for a trade just yet. In fact, there is still a ton of work to be done before we can call this a confirmed reversal pattern.

At the moment this is strictly a watchlist item. But with a height of 480 pips from head to neckline, it could be well worth the wait. As always, time will tell.

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nzdusd-head-and-shoulders-pattern

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