EUR/USD: Bearish outside day despite easing of US-China trade tensions

The EUR/USD pair is looking heavy, having carved out a bearish outside day (candle pattern) on Monday despite the trade optimism and the risk-on mood in the financial markets.

The common currency fell from 1.1175 to 1.1125 on Monday engulfing the preceding trading day's high and low. The resulting bearish outside day candlestick pattern is widely considered an early warning of an impending bearish reversal.

The trend change would be confirmed if the pair closes today below 1.1125. As of writing, the pair is trading at 1.1124, having hit a low of 1.1113 a few minutes before press time.

The US-China trade war took a heavy toll on the German economy, pushing the Eurozone's manufacturing powerhouse on the brink of recession. Therefore, the heightened prospects of the US and China reaching a trade deal are good news for Germany and Eurozone.

The market, however, bought US Dollars on Monday and may continue to do so on Tuesday, possibly because the easing of trade tensions provides the Fed more room to pause the easing cycle.

A bearish close, therefore, cannot be ruled out. The selling pressure will likely strengthen if the US ISM Non-Manufacturing, due at 15:00 GMT, blows past expectations. A weaker-than-expected print could put a bid under EUR/USD. That said, a close above 1.1175 is needed to invalidate Monday's bearish candlestick pattern.

The Eurozone producer price index scheduled for release at 10:00 GMT is not a big market mover. The pair, however, may take cues from the US Trade Balance and Markit Services PMI number due in the North American session.

• Read: US Service Sector October PMI Preview: That turned corner must be around here somewhere

Technical levels