Climaxing WACHT AM RHEIN's efforts, the Luftwaffe launched its one great appearance of the campaign during the early morning hours of New Year's Day. Over 1,000 aircraft took off before dawn to attack Allied airfields in Holland and Belgium, with the objective of eliminating the terrible scourge that the Allied air forces would again become once the skies cleared over the entire battle area. The Germans destroyed roughly 300 Allied machines, but their loss of more than 230 pilots was a major blow to the Luftwaffe, whose lack of trained aviators was even more critical than their fuel shortages.

Casualties mounted, bringing on a manpower shortage in both camps. Although the Germans continued to commit fresh divisions until late December, the Americans, with only three uncommitted divisions in theater, were forced to realign their entire front. Many units moved from one combat to another without rest or reinforcement. December's battles had cost the Americans more than 41,000 casualties, and with infantry replacements already critically short, antiaircraft and service units had to be stripped to provide riflemen for the line. Black soldiers were offered the opportunity to fight within black platoons assigned to many white battalions, a major break from previous Army policy.

Despite the shortage of replacements, both Patton's Third Army and Hodges' First Army attacked on 3 January. Collins' VII Corps in the north advanced toward the high ground northwest of Houffalize, with two armored divisions in the lead. Meeting stiff opposition from the LXVI Corps, VII Corps infantry soon replaced the tanks as difficult terrain, icy roads, and a tenacious defense using mines, obstacles, antitank ambushes, and armored counterattacks took their toll. The XVIII Airborne Corps moved its right flank south to cover Collins' advance, and in the far west the British 30 Corps pushed eastward. Under intense pressure Hitler's forces pulled back to a new line, based on the Ourthe River and Houffalize, with the bulk of the SS panzer divisions withdrawing from the battlefield. Poor weather restricted Allied flyers to intermittent close support for only three days in the nearly two weeks that VII Corps units fought their way toward their juncture with the Third Army.