Next week brings a heavy outlay of drivers as we hear from the Federal Reserve on Wednesday, the Bank of England on Thursday for a Super Thursday event that carries a chance for an actual rate hike; and Non-Farm Payrolls is released on Friday. Ahead of this outlay, we have a significant breakout showing in the U.S. Dollar after yesterday’s European Central Bank rate decision. Earlier this week, we remarked that the huge zone of resistance that had held the highs in DXY over the past three months might not have to wait to be tested until we got to US GDP or even FOMC. With such a heavy allocation of the Euro in the DXY price, a downside break in the Euro would likely spell USD-strength, and that’s precisely what’s happened over the past 24 hours after yesterday’s European Central Bank rate decision.

At that meeting, the ECB took an undeniably dovish tone, as had been the pattern from the bank in 2017. But even with that dovish drive from the ECB for most of the year, markets continued to price-in the possibility of a stimulus exit combined with the prospect of higher rates in 2018. Yesterday’s ECB meeting basically eradicated all of that: The ECB will reduce their bond purchases beginning in January of 2018, and will continue buying €30 Billion/month in European bonds. But they also said that they plan at rates staying at present levels for an extended period of time, inferred as 2019 at the earliest for any potential rate moves; and the ECB also said that they plan on reinvesting proceeds from their bond-buying program well beyond the horizon of the program.

EUR/USD Daily: Break of Three-Month Support Opens Door for Deeper Retracement

Chart prepared by James Stanley

So, taper appears to be off the table, rate hikes appear to be outside of the realms of realistic discussion for the near-future, and the Euro caught an aggressive case of selling after yesterday’s rate decision. The Dollar, meanwhile, put in a significant break of a key zone of resistance as that Euro weakness was getting priced-in.