To paraphrase senator Dirksen a trillion here, a trillion there and pretty soon you are talking real money. This week’s expansion of the Fed’s balance sheet by another $800 Billion was good example of that well worn maxim. Certainly the currency markets did not look kindly on the news, as the EUR /USD soared more than 300 points post announcement.

As I previously noted,”The trade in the dollar therefore has shifted from seeing the greenback as the safe haven asset and the ultimate reserve currency in a credit crunch world, to one where concern over the inflationary implications of so much debt being backstopped by the Fed and the US Treasury could make the buck vulnerable as we approach the end of the calendar year.”

But the rally EUR/USD did not last. The pair ran into massive supply at the 1.30's as month end fixes overwhelmed any immediate fears about dollar’s inflationary collapse. For the time being range continues to be the dominant theme as every breakout turns into a fake-out crushing the hopes of both bulls and bears.

Next week the focus will turn to the US Non-Farm payroll report as trader steel themselves for a possible -300K number. Given the 500K+ weekly jobless claims this month a large loss of jobs is almost assured but unless the print is woefully worse than the -285K expected it is unlikely to trigger much of a move in EUR/USD.

With Obama Administration still two months away from taking office, technical factors such as end of year fixes are more likely to dominate flows. As dollar repatriation picks up pace in December, the greenback may see one more round of buying, but on a longer term time frame the salad days of the dollar rally appear to be over and consolidation continues to be the dominant play in currency.

Boris Schlossberg serves as director of currency research at GFT, and runs bktraderfx.com.