The New Zealand dollar bottomed close to 0.77 against the US dollar in the end of September and has been trading above that level ever since. However, in our previous update on this pair we stated, that “0.7350 should be reached before we start looking for a bottom”. We still think so, which means that the recent recovery to 0.7973 has to be some kind of a temporary correction of the larger downtrend. In order to decide if this assumption is true, we will take a look at the wave structure of NZDUSD on a 30-minute chart.
The chart suggests for a double zig-zag retracement, labeled W-X-Y, which has been nicely contained between the parallel lines of a corrective channel. As visible, after the end of wave Y prices dropped by more than 170 pips to as low as 0.7797. This decline could represent the early stages of the downtrend resumption. According to the Elliott Wave Principle, trends move in five-wave sequences. Let’s check what the 5-minute chart could offer.
We see a clear five-wave impulse, just what we needed. Furthermore, the structure of waves 3 and 5 is also visible. The theory states, that after every impulse there is a three-wave correction in the opposite direction. We already have one on the chart above, but it looks a bit shallow. That is why we suppose wave (2) may extend to higher levels, before wave (3) to the south begins. Nevertheless, in both cases we will stay bearish on the New Zealand dollar, as long as the top of 0.7973 remains untouched.
