THE New Zealand dollar (NZD) has been depreciating against the US dollar since mid-2017 until September this year where it coincided with a previous low identified on May 2015. Subsequently, prices have rebounded off the floor and are currently resting on a strong resistance level. Various factors have led to the postulation that NZD has encountered an inflection point, and will continue its move lower on the backdrop of the overall downtrend.

A key observation of the price action reveals the formation of a wedge pattern. The wedge pattern is characterised by price moving within a diagonally narrowing range, both on the upper and lower bound unlike the ascending or descending triangle, where one horizontal axis remains constant. There are two directions in which the pattern might angle towards: upwards or downwards. In this case, the tip of the wedge pattern is seen to be tilting lower which can be identified as a falling wedge pattern. The wedge pattern is usually indicative of a bearish reversal pattern, in which prices tend to move higher upon completion.

To determine if the pattern is coming to a completion with a break of the resistance (upper bound), or continuation by returning to the support (lower bound), we apply the MACD indicator. The indicator currently lies below the zero level (-0.0012). This marks the presence of bearish momentum, which supports continuation of the pattern to the downside.