Last Monday, November 21st, while NZDUSD was trading around 0.7020, we published an article called “NZDUSD Poised for a Corrective Recovery”. In our opinion, based on Elliott Wave analysis, the pair was “providing an opportunity for the bulls to achieve a three-wave rally to at least 0.7110.” Instead of relying on economic data or political news, the chart below was all we needed to come up to this conclusion.
The logic behind our positive outlook was simple. The decline in NZDUSD between 0.7402 and 0.6984 was a five-wave impulse. According to the Wave Principle, every impulse should be followed by a three-wave correction in the opposite direction, which usually retraces at least back to the price territory of wave 4. The progress, made by NZDUSD in the last seven trading days, is visible on the updated chart below.
The first thing you will notice is that the A-B-C correction does not look exactly like the one we imagined. Instead of a zig-zag, the market chose an expanding flat correction, which includes a new low in wave B. This is the answer to the question why it is not a good idea to trade within a correction, especially in such a short term. Because you may be right that a correction is likely to begin, but you can never be sure what type of correction it is going to be, which makes trading within corrective patterns extremely difficult. On the other hand, wave C climbed to as high as 0.7128, achieving the 0.7110 level, mentioned in the forecast last week. Which leads us to the present, where the 5-3 cycle seems complete. According to the theory, the trend should now be expected to resume in the direction of the five-wave sequence. Just like it was not a good time to join the bears near 0.7020, it is not a good idea to become a bull near 0.7120. If this is the correct count, NZDUSD is likely to regain negative bias from now on. Levels below 0.6980 seem plausible.
