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EUR/USD Breakdown Fueling DXY, USDOLLAR Strength

EUR/USD Breakdown Fueling DXY, USDOLLAR Strength

Talking Points:

- EUR/USD slide below $1.0900 the backbone of recent USD-strength.

- Fed rate expectations have decreased slightly this week.

- See the DailyFX Economic Calendar for Friday, October 21, 2016.

The US Dollar is having another solid week, but to what degree depends on where you look. Why? The US Dollar itself isn't being driven higher by speculation around its own fate; one could argue that markets are viewing the greenback in a less favorable light. Over the past week, Fed funds futures have started to price in a smaller chance of a 25-bps rate hike by December, now at 63% from 68% on Monday.

Instead, given the outsized weighting of the Euro in DXY (57.6%), one needs to look no further than price action in EUR/USD the past 24-hours for an explanation as to why the broad measures of the US Dollar are gaining ground. The greenback can thank ECB President Draghi of course, who dismissed what we thought was a silly notion of the ECB tapering its bond-buying program at yesterday's meeting.

With US elections just around the corner, FX market volatility seems poised to increase steadily over the next few weeks. Likewise, this should translate into greater price swings in linked markets, like interest rates and commodities, for example. See the above video for technical considerations in EUR/USD, GBP/USD, AUD/USD, USD/CAD, Crude Oil, DXY, and the USDOLLAR Index.

Read more: Preview for ECB Rate Decision and Implications for EUR/USD

--- Written by Christopher Vecchio, Currency Strategist

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.