Euro Breaks Down, Dollar Breaks Out

The Fed decision broke the dam of dollar buying and has technically swamped the euro, yen and others. The 1.0450 lows gave way in EUR/USD, clearing the way to a deeper decline. But economic data raised some questions about US inflation. EURUSD was stopped out and a new trade was opened in a commodity to the 4 existing trades.

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The dollar buying on the heels of the FOMC rate hike extended in a big way on Thursday. The huge level that gave way was the 2015 low of 1.0462 in EUR/USD. A close below there would clear the way to parity and perhaps lower. The pair is trading near 1.04.

US dollar buying  accelerated early in New York trading and has exceeded 100 pips on nearly every major cross. The other big breakout is in USD/JPY as it takes out the 61.8% retracement of the 2015/16 decline.  The pair is up 350 pips since the FOMC decision.

Notably, the Fed didn't set the stage for anything that was not priced in. The statement was mundane and non-committal. The headline-grabber was the rise in the dots and how Yellen said the media projection was consistent with a gradual hiking cycle.

It's clear that the market is now full-on buying into the Republican administration and the potential for growth in 2017. What's not yet clear is that inflation is coming. US CPI rose 1.7% y/y in the November report released Thursday. That matched  expectations but wage growth was just 0.5% y/y, down from 0.9% in October.

Other data was more upbeat with the Philly Fed rising to 21.5 from 7.6. The NAHB home builder index also rose to 70 from 63 to match the best level since 2005. Seemingly the only thing that can derail the US dollar rally in the near-term is year-end and the associated flows.