EURNZD Bearish Divergence (Jan 21, 2015)

The falling resistance level might hold for now, as stochastic is indicating overbought conditions and is showing a bearish divergence.

As you can see, price made lower highs while the indicator made higher highs, confirming that bearish momentum is building up. In addition, the 61.8% Fibonacci retracement level appears to be holding as resistance since it lines up with the 1.5100 major psychological mark.

If the selloff resumes at this point, price could head back to its previous lows around the 1.4800 major psychological support or perhaps create new ones if selling pressure is strong enough. A break above the trend line and the 1.5100 handle, however, might indicate that a reversal is in the cards.

Earlier today, New Zealand reported a weaker than expected quarterly CPI, which explains the sharp selloff for the Kiwi. However, anticipation for an ECB quantitative easing announcement later on this week could keep the euro’s gains in check and force EURNZD to resume its drop.

There are no major event risks for both economies in today’s trading sessions, as there are no top-tier reports lined up from the euro zone and New Zealand. Market sentiment might cause a few moves though, as the BOE minutes and the BOC rate statement might usher in risk aversion.

For now, it appears that the path of least resistance for this pair is still to the downside, as the euro zone is in a fundamentally weaker state compared to New Zealand. Dairy prices appear to have bottomed out, as the latest auction indicated a 1.0% gain in prices, following the previous 3.6% increase.

By Kate Curtis from Trader's Way