NZD-JPY Forming a Possible Flag

By: Mike Kulej

The New Zealand Dollar has been of the strongest currencies in recent weeks. So far, it is not indicating any weakness, it even appreciated against the Australian Dollar during last week. Moreover, it rallied in relation to the Japanese Yen.

The latest upswing in NZD-JPY pushed this pair from 60.44 to 64.83. In the context of the current Forex volatility and historical patterns of this particular cross, this is a move of good size, especially since it happened in a matter of only few days. Now the NZD-JPY is consolidating in a tight way, which has making of a flag.

Under most circumstances, a flag is a continuation pattern, preceding another move in the direction prior to its emergence. Here, it suggests another swing up. For that to happen, the upper channel of the flag must be broken, and closed above, on the daily chart. For confirmation, the Momentum indicator can be used – it should move in the same direction as the price.

Flags tend to be small, tight patterns, hence the breakout ought to take place relatively soon, in perhaps a week’s time, given the time frame used. If the current consolidation last much longer than that, the formation might lose its potency and be less effective. For now, however, the price behaves like building a flag, so another price acceleration is very likely.