Dollar rode on intensified credit concern in the Eurozone and optimistic tone of FOMC statement to extend recent rebound broadly. Technically, EUR/USD dropped further away from the 55 days EMA which is inline with the view of medium term reversal. AUD/USD also completed a head and shoulder top last week as a the dovish RBA statement suggested that the rate hike cycle is paused. Dollar index rose to as high as 78.14 and was accompanied by gold's fall to close at 1113.6. Euro was under pressure last week first on news that Austria is forced to nationalize nationalize Hypo bank, that ran into trouble on hidden losses in Eastern Europe. Then, S&P downgraded Greece's government debt rating from A- to BBB+, reflecting their opinion that the measures are "unlikely...to lead to a sustainable reduction in the public debt burden." S&P also cut long term credit ratings fro Greek banks EFG Eurobank Ergasias and Alpha Bank AE by one level to BBB, and put those ratings on "creditwatch negative." The worry on Eurozone's banks drove funds to dollar and Swissy with EUR/CHF broke through 1.5 handle for the first time since March and closed at 1.4946. Fed keep the policy rate at 0-0.25% and pledged 'exceptionally low levels of the federal funds rate' will be maintained 'for an extended period'. Nevertheless, Fed acknowledged recent positive developments in the job market and financial market and said that 'the deterioration in the labor market is abating' while 'the housing sector has shown some signs of improvement over recent months'. Moreover, 'financial market conditions have become more supportive of economic growth'. Also, the statement said that businesses remained 'reluctant to add to payrolls', rather than continued 'cutting back on fixed investment and staffing'. The Japanese yen got little support in a risk averse environment on concern that BoJ will be expanding its quantitative easing program. There are talks that the yen is back to be the favored funding currency for carry trades. BoJ left rates unchanged at 0.1% as widely expected. Also BoJ reviewed its midterm price stability target and said that it will not tolerate CPI at zero or below as it sees CPI growth of around 1% as its understanding of price stability. The statement triggered speculations that BoJ is still on the road to further quantitative easing and will keep rates low for a prolonged period of time. Sterling was relatively resilient last week as supported by solid employment data which showed unexpected drop in claimant counts in November by -6.3k even though unemployment rate did rose to 7.9% in October. Nevertheless, retail sales was a disappointment which dropped -0.3% mom in November. Weakness in EUR/GBP will likely provide some additional support to the pound in near term. Aussie was under much pressure last week as dropped as much as -2.48% against dollar. RBA minutes said that the three interest rate hikes since October is now giving it "greater flexibility" at future policy meetings and imply the possibly of slowing the pace. RBA emphasized that the rate adjustment "would not be intended to slow demand compared with the current forecast path, but aimed simply at keeping the stance of policy appropriate for improving economic conditions." Traders are concerned that RBA would pause the tightening cycle in Q1. Looking at the charts, dollar index rose further away from 55 days EMA, which further confirm that it has bottomed out in medium term at 74.19 after being supported by 74.31 key support level. As noted before, the least bullish scenario is that rise from 74.19 is a correction to the five wave decline from 89.62 and will target 38.2% retracement of 89.62 to 74.19 at 80.08. The most bullish scenario is that three wave consolidation pattern from 88.46 has completed and up trend from 70.70 is resuming for another high above 89.62. It's still early to conclude which scenario is more likely. Focus will be on whether rise from 74.19 will develop into an impulsive five wave rally eventually. In any case, we'll stay bullish on the dollar index as long as 75.58 resistance turned support holds.

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