NZDUSD May See More Weakness, But After Temporary Correction

NZDUSD is in a strong downtrend for the last few weeks, which is expected to continue soon if we consider a five wave fall from 0.7402 followed by a recent bounce towards the 0.7171 level, which could be the first leg of a minimum three wave rise in corrective wave 2), labeled as wave A. If that is the case then drop from the mentioned level was sub-wave B that seems completed and current bullish development could be wave C the final leg of this three wave rise. As we see on the chart, we labeled a possible ending diagonal in wave C, that may unfold because of overlapping price movement. The ideal reversal zone for this whole correction may be around 0.7240 area.

The ending diagonal is a special type of motive wave that occurs primarily in the wave 5 position when price has moved too far and too fast. Some ending diagonal triangles appear in the C wave of an ABC correction. In all cases, the ending diagonal terminates the move of larger patterns. They consist out of five waves, with each having three more sub-waves.