NZDUSD seems to be in a state of free fall, ever since it reached as high as 0.6882 in late December. Currently, the pair is trading near 0.6460, after it fell to 0.6380 last week. And while the exchange rate is still considered to be in a downtrend, the Elliott Wave Principle suggests we might have to prepare for the return of the bulls soon. The chart below explains why.
According to the theory, trends move in repetitive patterns, called “waves”. A five-wave sequence forms the so-called impulse or impulsive wave, which shows the direction of the larger trend. Every impulse is followed by a three-wave correction in the opposite direction, before the trend resumes. The above-shown 4-hour chart of NZDUSD appears to be showing just that. A five-wave impulsive rally from 0.6235 to 0.6896, precedes an A-B-C corrective decline. If this is the correct count, the New Zealand dollar could be expected to reverse to the upside against the US dollar, as long as the invalidation level at 0.6235 holds. The anticipated recovery has the potential to take NZDUSD above the 0.6900 mark.
