- The NZD/USD pair has likely reversed its bearish trend in the short-term time frame.
- I was falling into a great pattern of measured movement, however there is a chance that this may not reach C's goal.
- A bullish close on Thursday would result in a “Three White Soldiers” candlestick reversal pattern on the daily chart.
The NZD/USD pair has been falling in a bearish three-wave pattern, known as a measured move, but intraday charts indicate that the short-term trend has likely reversed.
Measured moving price patterns are composed of a leg A, B and C, in which waves A and C are commonly of the same length – or related by a Fibonacci ratio of 0.618%.
US Dollar vs. New Zealand Dollar: Daily Chart
The pattern in NZD/USD has already fallen to its conservative target at the point where C equals a 0.618% Fibonacci ratio of wave A (0.5988). It has not yet reached the target calculated to be equal to the length of wave A.
However, in the last three days, the exchange rate has reversed and has risen strongly, which calls into question whether the end of wave C will be reached.
If Thursday's daily candle ends in green and therefore bullish, it will complete a candlestick reversal pattern called the bullish Three White Soldiers pattern. This happens when three consecutive rises occur after a long downtrend. It would be accompanied by high bullish Momentum that would reinforce the reliability of the pattern – a sign that NZD/USD is likely to rise further.
The 4-hour chart, commonly used to assess the short-term trend of an asset, is showing that NZD/USD has likely reversed in that time frame.
US Dollar vs. New Zealand Dollar: 4-hour chart
Since the April 1 lows, NZD/USD has rallied strongly. It has broken above the last high of the previous downtrend at 0.5995 and completed two series of higher highs and higher lows. All this with a strong bullish momentum. This indicates that the short-term trend has likely reversed.
The Relative Strength Index (RSI) is above 70, indicating that the price is overbought and there is a higher risk of the pair retracing. If it breaks out of overbought conditions and returns to neutral territory, it will give a sell signal and a correction is expected. Such a correction could retreat to the highs of 0.5995 as support.
Since the RSI has entered overbought, long position holders trading on a short-term time frame are advised not to increase their position size. If NZD/USD breaks out of overbought, it will be a signal to liquidate long positions and open short positions.
The 100 SMA resistance on the 4-hour chart at 0.6034 adds credence to the possibility of a pullback.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
