Surprisingly or not, the U.S. dollar has been losing ground not only to its major rivals like the Euro and the Japanese yen, but against the Hungarian Forint, as well. USDHUF reached 302.22 on December 15th, 2016. A year later, it was hovering near 260.00 and before the end of January 2018, the pair fell to as low as 246.45. The chart below puts the recent plunge into Elliott Wave perspective, in order to find out what it means and what to expect from now on.
The decline in question looks like a textbook five-wave impulse with an extended third wave, whose sub-waves are also visible. The guideline of alternation has been taken into account by the market, as well, since wave 2 is a sideways running flat correction, while wave 4 is a sharp corrective recovery between 252.49 and 269.54. This brings us to the present, where wave (v) of 5 appears to be in progress, suggesting USDHUF is supposed to make one last low near 245.00.
But instead of joining the bears, traders would be better off staying aside, because according to the Elliott Wave principle, every impulse is followed by a three-wave correction in the opposite direction. In other words, we could expect a major bullish reversal once the five-wave decline from 302.22 is complete. A bullish divergence between the price and the MACD indicator is another reason not to trust wave (v)’s bearish breakout. If the bulls are to achieve a decent retracement, they need to be able to lift USDHUF at least to the resistance area of wave 4 of the impulsive selloff, which lies around the 270.00 mark. Once there, the 5-3 wave cycle would be complete and the bears would once again be ready to drag the exchange rate to new multi-year lows.