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.

Based on the trading action Wednesday, it looks as if traders are betting on another interest rate cut. This market is poised to challenge the cluster of bottoms at 1.9360, 1.9336 and 1.9181. Watch for a possible technical bounce at these levels, but continue to press the short side on all rallies until the trend changes to up.

Appetite for Risk Puts Pressure on Yen and Swiss Franc

The USDJPY rallied with the U.S. stock market as traders increased their appetite for risk.

The pair is now in a position to take out the last main top at 105.71 to reaffirm the up trend. Technically speaking, regaining an up trending Gann line could accelerate the market to the February high at 108.61.

The USDCHF is in a similar position. The trading action on Wednesday has put the market in a position to reaffirm the uptrend on a breakout over 1.0625. A close over 106.30 will indicate further strength with a possible upside target of 1.0865.

Strengthening Economy and Firm Energy Prices Support Canadian Dollar

The USDCAD continues to trade in a range with a slight bias to the downside due to the surging crude oil market and the strengthening Canadian economy.

The recent stronger than expected economic reports are sending a sign that the Bank of Canada may not have to announce a rate cut at its next meeting on June 10.

Continue to look for sideways trading with par acting as a pivot price. If crude breaks sharply, then look to press the short side.

Slowing Economy Shows Interest Rate Hikes Are Working

The AUDUSD fell as a report showing wage growth unexpectedly slowed.

Technical traders may start to short this market especially if a major trend line is broken at 93.30. The charts indicate a possible break to .9248.

Signs that the economy is slowing in New Zealand is helping to push the NZDUSD lower.

Look for technical traders to try to push this pair through an up trending Gann angle .7609. A close under this level could trigger a sharp break to .7427.

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