- USD/HKD rate forms bullish chart pattern.
- Triangle may be alternative interpretation.
- Prices look close to a breakout from trend.
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The USD/HKD pair is showing a bullish flag on the weekly chart, which suggests higher prices are on the horizon.
The flag has formed following the steep ascent in February and March and the sudden plateauing and sideways range that formed after the April highs. This range is still intact but it looks close to completion.
Above: USD/HKD rate shown at weekly intervals.
If the bullish flag fulfils its potential it should rise as far as the flag 'pole' extrapolated higher from the point of breakout. This suggests a target at 7.8712 conservatively, by taking the golden ratio (0.618) of the pole.
A break above the 7.8509 highs would provide the confirmatory signal for an extension higher. It is also possible the flag square may in fact be a triangle pattern instead.
Above: USD/HKD triangle pattern.
If this were the case then the breakout higher would not be expected to go as far, reaching the golden ratio of the height of the triangle instead, which is at 7.8550, as a conservative estimate.
Triangle patterns are composed of a minimum of 5 integral waves labeled a-e as a rule, and this triangle has completed all 5, so its primed to break anytime soon.
Again, a break above the 7.8509 highs would provide confirmation of the break higher. If the pattern is a triangle there is also the possibility it could break lower, however, given the prior trend was up this is less likely.
Triangles are often the last pattern before markets peak so beware of a sudden reversal not long after the triangle breaks out and completes its last wave up, as the market may be reversing in a bigger way.
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