Forexperts

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A better than expected U.S. CPI number helped put pressure on the U.S. Dollar on Wednesday. The CPI number "magically" showed only a modest increase despite surging food and gasoline prices during April

As the Fed nears the end of its rate cutting cycle, it seems to have shifted its focus to inflation and the Dollar. Comments by a couple of Fed governors over the past week mentioned the Fed's concern about inflation. This could be a sign that the Fed sees the economy stabilizing and that a full-blown recession may have been avoided.

Wednesday's CPI number and Tuesday's Retail number were both signs that the Fed seems to have made the right moves the past nine months by providing just enough liquidity to provide an economic stimulus without fueling inflation.

Despite the lower than expected increase in the seasonally adjusted CPI number, the Fed is still going to have to keep an eye on the food and energy markets. If prices continue to rally in these two areas, then consumers may cutback their spending in other areas. This could cripple the economy.

The ECB has not changed its hawkish attitude about keeping interest rates at 4%. A spattering of economic reports have showed signs of weakness, but with a down trend established in these economic reports, the ECB will continue to stand strong against inflation.

With both the Fed and ECB concerned about inflation, the EURUSD is most likely going to trade in a range until either the ECB, or the Fed, changes its stance on interest rates.

Look for the Euro to continue to tighten the trading range between 1.5283 and 1.5595. The tighter they wind this range, the bigger the move when the range is finally broken. The first upside target on a breakout rally is 1.5651. On the downside, look for a possible test of 1.5228.

Bank of England Has to Decide Where to Fight the Battle

Housing and property values continue to erode while consumer prices continue to move higher. The Bank of England is in a difficult position due to these conflicting fundamentals.

The issue at this time is whether the Bank of England should continue to cut interest rates. Reducing rates would provide a stimulus to the economy, but would weaken the currency. Raising rates to fight inflation could squash growth possibilities.

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