NZD/USD Price Analysis: Forming a rectangle as it unfolds in a range
- NZD/USD trades in a range which could represent part of a Bull Flag continuation pattern.
- Conditional on a break above the range highs the pair could rally up to the targets for the Bull Flag.
- Alternatively a break lower is possible, bringing the uptrend into doubt.
NZD/USD has spent the last week or so forming a range bound consolidation (shaded rectangle on chart) which could represent the flag square of a Bull Flag continuation pattern.
The pair is probably in an uptrend on a short-term basis, favoring more upside in line with the saying “the trend is your friend”, however, a break above the rectangle’s highs at 0.6153 would give more confirmation of an extension higher.
NZD/USD 4-hour Chart
Such a breakout would probably see the price rally up to 0.6180, the first target for the Bull Flag pattern. This is calculated by taking the length of the “pole” and extrapolating it by a 0.618 Fibonacci ratio from the base of the rectangle higher. This is the conservative target for the pattern but a more bullish move could even reach the 0.6240 target at the 100% extension of the pole higher.
A breakdown is also possible, however, and a break on a closing basis below the rectangle’s base would negate the Bull Flag hypothesis and suggest a more bearish tone to the chart. Such a break would also pierce the trendline for the move up during May and likely see NZD/USD decline to a downside target at 0.6035, the 0.618 Fib. ratio of the height of the rectangle extrapolated lower.