Retreat into the area casts doubt on upward trend

• NZD/USD could head lower again after a false breakout from a multi-month range.
• The pair is at a critical juncture – a close inside the range could mark a surprise bearish reversal.

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

Despite the current weakness, the trend in the daily chart remains bullish and under the premise “the trend is your friend” the chances are still good for a recovery and a possible 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 significant likely gains on the horizon, however, the price failed to move higher and instead rolled over and began to fall.

NZD/USD daily chart

Assuming the correction loses steam, the price should find a bottom and start rising again. It will likely eventually reach its next upside target at 0.6409, the December 2023 high. This is a conservative target for the pair. The breakout from the range has actually activated another higher target, which lies at 0.6448, the 0.618 ratio of the range's height, extrapolated.

However, given the current weakness and potential trend reversal seen on the 4-hour chart (not shown), there is a risk that the breakout was false and the pair may now start to decline again within its known range.

A daily close below the upper limit of the range – that is, below 0.6220 – would be further confirmation of a bearish turn. 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 even more confidence.