EUR/USD: downside exposed after bearish outside-day

• EUR/USD charted bearish outside candle yesterday, courtesy of Brexit vote and ECB’s dovish turn.
• The candlestick pattern signals the continuation of the sell-off from the recent high of 1.1570.
• Political uncertainty in the UK could add to the bearish pressures around the EUR/USD.

The EUR/USD pair created a bearish de reversal candle yesterday – price action engulfed Monday’s high and low – signaling a continuation of the sell-off from the recent high of 1.1570.

Moreover, the common currency tracked the British pound lower. The GBP/USD took a beating after Prime Minister May’s Brexit deal was voted down by parliament. The drop to 1.2668, however, was short-lived – the currency pair recovered lost ground to close largely unchanged on the day at 1.2859.

The EUR, however, did not follow suit, possibly due to dovish turn by the European Central Bank’s (ECB) Draghi. The central bank head warned lawmakers that the Eurozone economy is weaker-than-expected.

Draghi’s dovish comments will likely keep the EUR under pressure today. Further, a stronger pullback in CNH (rally in USD/CNH) could lead to broad-based USD strength.

Also, heightened political uncertainty in the UK could weigh over both the GBP/USD and the EUR/USD. Moreover, a no-confidence vote against PM May’s government will be held later today and, if parliament decides that it does not want the government to carry on, then it could lead to general elections.

All-in-all, the path of least resistance in the EUR/USD pair is to the downside. The bearish setup would be negated above the previous day’s high of 1.1490.

EUR/USD Technical Levels