It has not been a good week for NZDUSD. After climbing to 0.7324, the pair lost momentum and fell to 0.7118 so far. But NZDUSD plunged to 0.6235 in September, 2015, so the current small pullback does not seem to be a reason for concern. Well, we believe it is, because, according to the Elliott Wave Principle, this week’s decline might be the start of something much bigger. The chart below explains why.
The daily chart of NZDUSD shows the entire recovery between 0.6235 to 0.7324. As visible, it looks like an A-B-C zig-zag correction, where wave A is a regular impulse, while wave C is an ending diagonal. The theory says that once a correction is over, the larger trend resumes and eventually retraces the entire corrective sequence. In this case, NZDUSD is supposed to erase all the gains that were added during the last 10 months. In addition, the lower line of the diagonal in wave C has already been breached by the bears, which further support the negative outlook. If this is the correct count, targets below 0.6235 are plausible, as long as 0.7324 holds. From an Elliott Wave perspective, buying the dip in NZDUSD is not the best thing to do right now.