Retreat back inside range brings uptrend into doubt

• NZD/USD may be reversing back down after a false break to the upside of a multi-month range. 
• The pair is at a critical point – a close back inside the range could mark a surprise bearish turn. 

NZD/USD has reversed course after breaking out of the top of its consolidation range. It is possible the break may have been “false” and the pair will now start falling back down towards the range lows, however, it is too early to say for sure. 

Despite the current weakness, the trend remains bullish on the daily chart, and given “the trend is your friend” the odds still favor a recovery and eventual extension to higher highs. 

The break above the August 20 high on August 29 and September 3 confirmed a breakout from the multi-month range. This would normally indicate substantial probable gains on the horizon, however, price failed to extend and instead rolled over and started breaking lower. 

NZD/USD Daily Chart 

Assuming the correction runs out of energy the price should find a floor and start going higher again. It is eventually likely to achieve its next upside target at 0.6409, the December 2023 high. This is a conservative target for the pair. The breakout from the range actually activated another higher target that is at 0.6448, the 0.618 ratio of the height of the range extrapolated higher. 

Given the weakness currently witnessed and the possible reversal of the trend on the 4-hour Chart (not shown), however, there is a risk the breakout was false and the pair will now start declining back down within its familiar range. 

A daily close below the top of the range – that is to say below 0.6220 – would provide more confirmation of a bearish twist. The Moving Average Convergence Divergence (MACD) would also give a bearish signal if it closes below its signal line. A close below 0.6194 would provide more confidence still.