The New Zealand dollar has started to break higher against the US dollar this week, with the pair testing its 200-day moving average for the first time since July 2019.
An inverted head and shoulders pattern was triggered across multiple time frames and is pointing to more upside for the NZD/USD pair.
NZD/USD medium-term price trend
The NZD/USD advanced to its highest trading level since August earlier this week, with the NZD/USD pair hitting 0.6565 and pair trading above its key 200-day moving average.
The daily time frame shows a large inverted head and shoulders pattern was triggered, with the measured target of the bullish pattern extending towards the 0.6700 level.
Multiple daily price closes above the NZD/USD pair’s 200-day moving average, at $0.6540, are currently needed to encourage fresh NZD/USD buying.
The breakout appears genuine at this stage and is supported by broad-based US dollar weakness and a rally in commodity currencies.
Key medium-term technical resistance is located, at the 0.6585 and 0.6645 levels. Watch out for a potential trend change in the NZD/USD pair if price continues to close above the 200-day.
NZD/USD short-term price trend
The short-term trend in the NZD/USD pair remains bullish while price trades above the 0.6410 level. Given that the breakout extended over one-hundred points, the recent technical pullback towards the 0.6520 level was certainly expected.
Traders that are bullish towards the NZD/USD pair in the short-term will use any technical corrections as a solid buying opportunity.
Currently the 0.6490 level is the likely correction target. Traders should also be mindful that the recent rally has created substantial amounts of bearish MACD price divergence and a technical pullback move beyond the 0.6490 level.
The bearish MACD divergence is present across the 30-minute time frame and extends down towards the neckline of the bullish inverted head and shoulders pattern, around the 0.6440 level.
NZD/USD technical summary
The NZD/USD pair could start the next phase of its ascent once bulls establish a clear trend shift above its 200-day moving average.
The short-term technicals suggest that a strong technical correction could occur if the recently created bearish MACD price divergence starts to kick-in.