NZD/USD – Bullish Continuation Signal from a Pennant Breakout

NZD/USD - Bullish Continuation Signal from a Pennant Breakout

The NZD/USD has been consolidating for a little over a week since making a new high on the year at 0.8793. You can even argue that the pair formed a double top when it pushed below the 0.8728 neckline. However, the Kiwi-US Dollar remains bullish, and is starting the week with a bullish breakout that signals continuation of the uptrend.

NZD/USD 4H Chart, 7/7
nzd/usd 7/7 4h chart

1) Instead of looking at a double top, traders might be more focused on a pennant, which is a consolidation pattern seen in the middle of trends. Price is challenging the pennant resistance with strong bullish candlesticks, hinting at an imminent breakout.
2) Price will above the 200-, 100-, 50- moving averages if it clears above 0.8760.
3) The moving averages are in bullish alignment, and are sloping up.
4) The RSI has held above 40 for the most part. The most recent dip below 40 was quickly lifted. This reflects maintenance of the bullish momentum If the RSI pushes above 60, it would reflect a breakout from consolidation mode back into the uptrend.

NZD/USD Daily Chart, 7/7
nzdusd 7/7 daily chart

The RSI on the daily chart shows there is still room to run before momentum would be seen as overbought, like it was back in March. The 0.89, and 0.90 levels are in sight with no signs of a correction yet.

Candlestick combination:
If today’s daily candle closes above 0.8760, we would pretty much have an “engulfing pattern” after a “harami”. The harami (pregnant) combination describes the previous 2 sessions, where the 7/3 session was within the lower half of the 7/2 session candle. Today’s bullish candle would have a lower low and then a higher high, which loosely defines an engulfing pattern. The combination of these patterns also signal readiness to reverse from the near-term consolidation back into the bullish trend.

 The NZIER Business Confidence will be the next fundamental factor. If it is even close to Q1’s 52 reading, it should reflect a very optimistic business outlook (a reading above 0 reflects growth).

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