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.

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