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Kiwi has found a difficult time increasing in the wake of the US Dollar weakness that began August 15. Today, NZDUSD has tested and broken a trend line in place since the low in the pair. This indicates the mood of the market may be changing.

Additionally, EURNZD has broken to its highest level since September 2015.

Therefore, it appears an opportunity exists to jump on NZD weakness. The favored trade is for additional strength in EURNZD and additional breakdown in NZDUSD.

Short NZDUSD

Short Entry: .6659

Stop Loss: .6720

Target: .6575

Risk to Reward Ratio 1 to 1.4

Long EURNZD

Long Entry: 1.7570

Stop Loss: 1.7354

Target: 1.8000

Risk to Reward Ratio 1 to 2

(We studied millions of live trades to find what makes some traders successful over others. Risk to reward ratios was a common trait so we used that in our Traits of Successful traders research.)

What Elliott Wave are we in now?

From an Elliott Wave perspective, a broken support trend line is a negative pattern. This elevates the probability that the increase from August 15 is a three-wave rise labeled as a zigzag.

If NZDUSD was about to explode higher, it would have needed to bounce higher immediately to hold above the trend line. Therefore, a break of the trend line opens the door to further losses to retest the August 15 low.

Additionally, the percentage of traders who are long NZDUSD have increased over the past 5 hours from 61% to 65%. This is an additional bearish signal.

nzdusd chart with elliott wave labels indicating a bearish reversal.

Though we are not specifically performing an Elliott Wave analysis on EURNZD, our viewpoint on EURUSD is that it is rallying in a larger corrective wave that may last for several weeks or months. This may be a medium term trend towards US Dollar weakness that NZD may not participate in. Therefore, pairing EUR against NZD may have medium term potential.

eurnzd chart with price breaking out to 3 year highs.

Elliott Wave Theory FAQ

How does Elliott Wave theory work?

Elliott Wave Theory is a forex trading study that identifies the highs and lows of price movements on charts via wave patterns. Traders often analyze the 5-wave impulse sequence and 3-wave corrective sequence to help them trade forex strategically. We cover these wave sequences in our beginners and advanced Elliott Wave trading guides.

New to FX trading? We created this guide just for you.

---Written by Jeremy Wagner, CEWA-M

Jeremy Wagner is a Certified Elliott Wave Analyst with a Master’s designation. Jeremy provides Elliott Wave analysis on key markets as well as Elliott Wave educational resources. Read more of Jeremy’s Elliott Wave reports via his bio page.

Do you agree/disagree with Jeremy’s Elliott Wave count above? Include your comments and Elliott Wave chart in the comments section below.

Discuss this market with Jeremy in Monday’s US Opening Bell webinar.

Follow on twitter @JWagnerFXTrader .