NZD/USD Divergence Play (February 5, 2014)

Thanks to strong New Zealand jobs figures, NZD/USD made a stellar rally in the past trading session and climbed back above the .8200 handle. However, the pair might be encountering resistance right at that area, which has acted as a support level in the past.

At the same time, price has made lower highs while stochastic drew higher highs, forming a bearish divergence. Stochastic is already moving out of the overbought zone, hinting at a potential short-term selloff.

If that happens, the pair might be on its way to test the former lows around the .8100 major psychological level. Shorting at market with a 100-pip stop and a target of .8100 would be a 1:1 return on risk.

By Kate Curtis from Trader’s Way