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EUR/USD risk reversals contradict bearish pinbar, still gunning for 1.20?

  • EUR/USD - bullish sentiment strengthens in the options market.
  • Bearish pin bar needs a negative follow-through.

Euro's drop from the previous day's high of 1.1975 to 1.1898 cannot be attributed to specific factor(s) but could be considered as a sign of bull market exhaustion. Kathy Lien from BK Asset Management writes, "the technical structure of the pair signals a deeper correction to 1.1850."

However, as per textbook rules, only a negative follow-through (bearish price action) today would add credence to the bearish pin bar candle and open doors for a deeper pullback.

But, the EUR/USD risk reversals gauge suggests the bearish pin bar could be a bear trap.

Risk reversals

The one-month 25 delta risk reversals gauge rose to 0.55 yesterday; the highest level since July 25. The uptick in the gauge indicates increasing demand for the EUR calls. Clearly, the options market sees yesterday's dip as a temporary one.

Still, a move above 1.20 is easier said than done as the memories of ECB jawboning the currency back in September could keep the bulls at bay.

EUR/USD Technical Levels

FXStreet Chief Analyst Valeria Bednarik writes, "technically and for the upcoming sessions, the pair retains the bullish stance despite the modest daily pullback, as in the 4 hours chart, technical indicators have managed to correct extreme overbought conditions, but remain well into positive territory, with the RSI around 62 indicating a limited downward strength. In the same chart, the 20 SMA maintains its bullish slope around 1.1870, reinforcing the view. The 1.1890 region is the immediate support, en route to 1.1860, while only below 1.1820 bulls will lose hope, handing the grip to bears.

Support levels: 1.1890 1.1860 1.1825

Resistance levels: 1.1960 1.2000 1.2045

 

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