NZDUSD has been rising during the last month and a half, but lost its shine recently by dropping from 0.7374 to as low as 0.7155 in just five trading days. As always, the main question is where is the pair going to from now on? If you do not want to blindly follow the herd, you need to adopt a methodology for analyzing such situations, in order to make better informed trading decisions. The method we use is called the Elliott Wave Principle and it has been applied to the 30-minute chart of NZDUSD below.
This chart makes the above-discussed decline visible. You do not have to be an Elliott Wave expert with years of experience to see that the New Zealand dollar has drawn a five-wave impulse to the south against the greenback. What does this mean? According to the theory, a three-wave correction in the other direction follows every impulsive pattern. In other words, NZDUSD is likely to head north for a three-leg recovery. In addition, the relative strength index shows the typical divergence between waves 3 and 5, thus giving us another reason not to hurry selling the kiwi. So, instead of joining the bears right away, traders would be better off waiting for the corrective recovery in wave (2/B) to lift the pair by some 70-80 pips first. Then, as long as 0.7375 is safe, the odds will be in the bears’ favor for more weakness in wave (3/C) towards the area below 0.7150.