An Elliott Wave count for NZD/USD tracking the decline from September 9 highs suggests that the current bearish cycle has not completed as of yet.
From the September 9 high of 0.7485, the main sequence to the downside completed on September 13, marked as wave A on the chart. The subsequent correction took 8 sessions to complete at 0.7370, marked as wave B on the chart. The decline from September 21 highs at 0.7370 has been unfolding as wave C, and is expected to still be playing out.
From the highs at 0.7370 to last week’s low of 0.7034 a cycle of a smaller degree has completed and marked as wave (a). At this point, the retracement would reflect wave (b) of wave C, and the turn lower would reference wave (c) of wave C. There has not been any indication of wave (b) completing within this current structure as of yet, but while below 0.7370 there is an expectation for the pair to turn lower once again, with the next leg lower taking the pair below the 0.7000 handle.
In the first leg lower, wave (B) posted a notably small retracement against highs prior to turning lower. This is unusual in the early stages of a turn of trend. A more common occurrence is to have deep retracement in the early stages of a turn, as recently seen in the EUR/USD. The most recent Elliott Wave analysis for EUR/USD had indicated that the pair was in early stages of a broader decline and that deep retracements were to be expected, ahead of a sustained break lower.
The reasoning behind deeper retracements in the first leg is related to market psychology, a subject R.N. Elliott talked often about. Markets will tend to focus on the predominant trend. When a turn is taking place, in this case a turn lower, the instrument will tend to get bid on dips as the consensus remains bullish. This causes the appearance of a range. When the range is broken, sentiment tends to shift.
In the case of NZD/USD, the first leg had a shallow retracement, while there is no hard set rule of alternation among corrective sequences, it appears there is an alternation in the sequence. The current pullback in wave (b) has already reached the 61.8% Fibonacci retracement as measured from wave B but can extend as high as the 88.6% retracement.
The reason wave C is not expected to have completed already is because wave A unfolded as a double correction. This can either be marked as a WXY pattern or by using a wave label of a higher degree, as seen in the current count. With a double correction in the first leg, the second leg would be expected to show the same sequence. As a double correction cannot be seen in wave C, it is assumed that the structure has not completed, and another leg below last week’s low would complete the sequence.
The invalidation for the current wave count falls at 0.7370.