Is NZDUSD forming a large head and shoulders pattern?

19/10/2020

The NZDUSD pair, also known as the kiwi, rose 0.6% on Monday, and it was trading at around 0.6640 at the time of writing.

Like many other FX pairs, this one has gone sideways for many weeks now as well, and we see a clear consolidation phase after the large decline in March and the sharp rally in May. 

The daily chart is now starting to look like a large head and shoulders pattern, which is a reversal formation and, in this case, a bearish one. The neckline of this formation seems to be near 0.65, and if the price drops below this level, the pattern could be confirmed. 

This formation's potential is circa 300 pips, implying the bearish target at 0.62, almost entirely erasing gains from the spring rally. 

However, the pair is now trading well above the neckline, and therefore this formation is still only theoretical. 

Alternatively, the resistance seems to be in the 0.6660/80 area, which has stopped bulls a couple of times already. If this level is broken to the upside, a further rally to 0.6800 could occur. 

The head and shoulders pattern will be considered invalid if the NZDUSD pair breaks above the right shoulder's highs of 0.6680.
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