Pulling back inside the range casts doubt on the uptrend

• NZD/USD could reverse back down after a false breakout at the top of a multi-month range.
• The pair is at a critical juncture – a close within the range could mark a surprise bearish turn.

NZD/USD reversed course after breaking out of the top of its consolidation range. It is possible that the breakout was “false” and the pair will now start to fall back towards the lows of the range, however, it is too early to say for sure.

Despite the current weakness, the trend remains bullish on the daily chart and with the trend being your friend, the odds still favor a pullback and eventual extension to higher highs.

The break above the August 20 high on August 29 and September 3 confirmed a break from the multi-month range. This would normally indicate likely substantial gains on the horizon, however the price failed to extend and instead turned around and started to decline.

NZD/USD Daily Chart

Assuming the correction runs out of energy, the price should find a low and start going up again. Finally, it is likely to reach its next upside target at 0.6409, the highest level since December 2023. This is a conservative target for the pair. The breakout in the range actually activated another higher target, which is at 0.6448, the 0.618 ratio of the range height extrapolated above.

Given the weakness seen today and the possible trend reversal on the 4-hour chart (not shown), however, there is a risk that the breakout is false and the pair will now begin to decline back into the familiar range.

A daily close below the top of the range – i.e. below 0.6220 – would provide more confirmation of a bearish turn. Moving Average Convergence Divergence (MACD) would also give a bearish signal if it closes below the signal line. A close below 0.6194 would provide even more confidence.