We've been in the second-half of the tightening cycle for a while now but the Fed, or more specifically Powell, refused to send a firm signal that we are there yet. He pushed back on any hopes of a Fed pivot in Jackson Hole in August and also at the FOMC meeting press conference in November. But finally, he relented yesterday.
That is reason enough for markets to pop off, with stocks and bonds rallying hard while the dollar slumped to wrap up its worst monthly showing since September 2010. It's a big signal that we are nearing the peak in terms of rates, even if the Fed will continue to preach that they are still adamant in fighting off inflation.
It will now come down to the technicals to corroborate with the story and that could lead to a Christmas carnage for the dollar, especially if we see a softer inflation print in two weeks' time alongside a less hawkish stance by the FOMC - which Powell suggested could be the case in his speech yesterday.
EUR/USD has managed to crack above its 200-day moving average (blue line) once again and is up another 0.3% today to 1.0440. The key level to watch next will be a break above 1.0500 and that will tee up further gains towards its key trendline resistance which sits just above the 1.0600 mark currently.
Meanwhile, USD/JPY looks poised for a run towards 135.00 now as daily support at 137.65 to 138.45 looks to give way amid a plunge in Treasury yields. 10-year yields fell by a staggering 13 bps yesterday and is now down to 3.607% and looks poised for a run towards 3.50% and its own 100-day moving average at 3.47% currently.
GBP/USD is also running towards its 200-day moving average (blue line) and that could be a catalyst for the next upside leg, if buyers manage to hold a firm break above the key level. The August highs at 1.2276-93 will be the next key resistance point before a potential surge towards 1.2500 for the pair.
Elsewhere, AUD/USD has successfully cleared resistance from its 61.8 Fib retracement level at 0.6767 now and that is opening up room for buyers to roam to the upside. As risk trades are roaring with the potential for further gains (S&P 500 also broke above its own 200-day moving average), the pair could be looking towards its own 200-day moving average (blue line) next at 0.6924 before the upside momentum stalls.