NZD/USD has been steadily declining since November 8th, when it reached 0.7402. Currently trading near 0.7020, the bears seem unstoppable and after a selloff of over 400 pips, it looks like the pair is headed much lower. However, even the strongest trends are interrupted by moves in the opposite direction, which might cause a lot of headaches, if you happen to join the trend right before one of these corrections. So, let’s see an hourly chart of NZD/USD, which will allow us to take a look at the wave structure of the decline in question.
As visible, the plunge between 0.7402 and 0.6984 could easily be seen as a five-wave impulse. According to the Elliott Wave Principle, this pattern should followed by a three-wave retracement in the other direction. Furthermore, NZD/USD’s wave 5 appears to be an ending diagonal, accompanied by a bullish divergence with the relative strength index.
All these leads makes us think the bears might be ready to step aside for a while, providing an opportunity for the bulls to achieve a three-wave rally to at least 0.7110, where the resistance could be anticipated to put NZDUSD under pressure again. But in any case, it does not seem to be the best time to add to shorts.