Yesterday, on October 29, 2014, the FOMC announced the end of the quantitative easing (QE) program. After the announcement the US dollar rose sharply against the other currencies. Most people would say that the FOMC decision was the reason for this. That is why they have been waiting for it in order to make their trading decision.
On October 27, 2014, two days before the FOMC announcement, we published an article, called “NZD/USD ready to resume downtrend”, saying that “we should expect another sell-off in NZDUSD soon”. But our opinion had nothing to do with the QE or any other piece of news. As always, it was motivated only by the Elliott Wave Principle. The chart below shows how NZD/USD looked like on Monday.
According to the theory five-wave sequences show the direction of the larger trend. Following this logic, we assumed we were approaching a reversal area, because there was a five-wave impulsive decline from the end of wave Y at 0.8032. On the next chart of NZD/USD you can see what has happened with the pair since our Monday’s forecast.
As visible, the exchange rate went into the reversal zone and then continued a little higher. The important thing is that it did not reach the invalidation level of 0.8032, so the bearish scenario was still in play. Then came Wednesday and the sell-off we have been waiting for. Many may see it as a result of FOMC. To us, it is nothing else, but a natural outcome. This situation provides a good example of the Wave Principle’s ability to prepare you for future developments long before their “cause” is known to the public. In this case, we were two days ahead of the news.