U.S. consumer prices surprised the market yesterday with the highest increase in 13 years. Federal Reserve Vice Chair Richard Clarida said he was surprised by the jump, but that it should prove largely transitory. Market participants however question the Fed’s control of inflation amid concern that the central bank might wait too long to address the increase while the U.S. is overheating.
As expected, the greenback advanced against other peers in reaction to the CPI report.
EUR/USD: The pair tumbled towards 1.2050 on the back of a strengthening dollar. If the 1.2050-level breaks, the next target is 1.20 where we see a crucial support. On the upside we expect the 1.2150-area to serve as a resistance while a break above 1.2160 could reinvigorate bullish momentum towards 1.22.
GBP/USD: More bearish momentum could be in store as long as the cable remains below 1.4140. It will be interesting now whether the 1.40-support holds. Below 1.3990 we target the 1.3920-mark.
DAX: We expect the index to fluctuate between 15300 and 14980. A break above 15340 could push the DAX higher towards 15500 whereas a downside break of 14950 could lead to further losses towards 14800.
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