At the start of December, 2018, NZDUSD almost reached 0.6970. A month later, the “flash crash” which brought chaos to many other Forex pairs, dragged the New Zealand dollar to 0.6586 on January 2nd, 2019.
As of this writing, NZDUSD is hovering around 0.6760 and the bulls are probably wondering whether this is a chance to evacuate or the beginning of a larger rally. We are interested in finding the answer to this question, as well. The chart below allows us to take a look at the situation through an Elliott Wave perspective.
The 4-hour chart of NZDUSD reveals the structure of the recovery from 0.6424 to 0.6969, which took place between October 8th and December 4th, 2018. As shown, it can be seen as a five-wave impulse pattern, labeled 1-2-3-4-5. The Elliott Wave theory states that a three-wave correction follows every impulse. That is exactly what we believe the selloff to 0.6586 stands for – a simple A-B-C zigzag with a running flat correction in the position of wave B.
If this count is correct, NZDUSD’s 5-3 wave cycle is complete and the bulls can be expected to lift the pair above 0.7000 from now on. Furthermore, it is no coincidence that the current sharp bounce occurred shortly after the Kiwi pierced the 61.8% Fibonacci level. The bulls remain in charge as long as NZDUSD trades above the low at 0.6586.
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