EUR/USD: More pain ahead as risk reversals slide

EUR/USD risk reversals hit a one-month low, indicating more pain ahead for the common currency.
GBP/USD will likely rally, lifting the EUR/USD higher, if the UK moves toward a second Brexit referendum.

Omkar Godbole FXStreet Contributor

The EUR/USD pair could be in for a deeper drop toward 1.13 as the risk reversals have hit one-month lows.

As of writing, the pair is trading at 1.1385, having clocked a two-week low of 1.1377 yesterday. Meanwhile, one-month 25 delta risk reversals, a gauge of calls to puts on the common currency, are currently trading at -0.45 in favor of put options (bearish bets); the lowest level since Dec. 17. The data indicate that investors are adding bets to position for an extended drop in the EUR.

A similar message is being echoed by two-week lows seen in three-month, six-month and 12-month risk reversals. The Euro, therefore, risks extending the ongoing sell-off from the recent high of 1.1570.

The EUR, however, will likely find bids, if the GBP starts cheering the idea of a second Brexit referendum. Oddschecker currently puts the probability of a second referendum at 61.5 percent. More importantly, that probability would rise further, if the UK parliament remains divided, forcing PM May to announce a second referendum in order to avoid hard Brexit.

EUR/USD Technical Levels

EUR/USD

Overview:
    Today Last Price: 1.1384
    Today Daily change: -9.0 pips
    Today Daily change %: -0.0790%
    Today Daily Open: 1.1393
Trends:
    Previous Daily SMA20: 1.1433
    Previous Daily SMA50: 1.1384
    Previous Daily SMA100: 1.1468
    Previous Daily SMA200: 1.1614
Levels:
    Previous Daily High: 1.1425
    Previous Daily Low: 1.1378
    Previous Weekly High: 1.1571
    Previous Weekly Low: 1.1396
    Previous Monthly High: 1.1486
    Previous Monthly Low: 1.1269
    Previous Daily Fibonacci 38.2%: 1.1396
    Previous Daily Fibonacci 61.8%: 1.1407
    Previous Daily Pivot Point S1: 1.1372
    Previous Daily Pivot Point S2: 1.1351
    Previous Daily Pivot Point S3: 1.1324
    Previous Daily Pivot Point R1: 1.1419
    Previous Daily Pivot Point R2: 1.1446
    Previous Daily Pivot Point R3: 1.1467

Author

Omkar Godbole

FXStreet Contributor

Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.

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