Less than three months ago, on January 7th, we published an analysis of NZDUSD. It was trading near 0.6750 at the time, following a sharp decline from 0.6970. However, instead of simply extrapolating the selloff into the future, we examined the chart below through an Elliott Wave perspective. And it gave us a few reasons for optimism.
The 4-hour chart of NZDUSD revealed a textbook five-wave impulse to the upside, followed by a three-wave correction down to the 61.8% Fibonacci level. According to the theory, the trend was supposed to resume in the direction of the impulse pattern. Targets near 0.7000 were plausible.
NZDUSD Two and a Half Months Later
And indeed, the pair climbed to 0.6942 on February 1st. Alas, the price has been moving sideways ever since, so it is time to take another look at the situation. The good news is 0.7000 is still there for the taking.
Whenever the price has been moving sideways without making new highs or lows, it pays to check for a triangle pattern. In NZDUSD’s case, it looks like the plunge to 0.6582 was just the first wave – A – of a contracting triangle, labeled A-B-C-D-E.
If this count is correct, wave E completed wave (B) two weeks ago and wave (C) up is now in progress. We can expect another five-wave impulse to finally lift NZDUSD to 0.7000 and even approach 0.7100.
What’s the Alternative?
But what if we are wrong and there is no triangle on the 4-hour chart of NZDUSD at all?
What looks like a complete triangle sometimes turns out to be an ending diagonal in progress. If that is the case, the a-b-c recovery from 0.6582 to 0.6942 fits in the position of wave 1 of (C). Wave 2 is another a-b-c zigzag with a truncated wave “c” and wave 3 up is currently unfolding. Once it is over near 0.7050, we should prepare for a small pullback in wave 4 and one last high in wave 5 of (C).
Right now, it is impossible to tell which of the two counts the market will choose. Fortunately, they both indicate NZDUSD is going to exceed 0.7000 before the bears return.
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