The mini-shock in the US CPI for October continues to affect the markets this week. EURUSD has updated its local low and is trading below 1.14 level. The next support can be found at 1.135, where the lower border of the macro trend channel resides:

Taking into account breakout of the medium-term downward channel by a forceful move on Monday, the bearish impulse that has arisen may lead to a false breakout to the 1.13 area, followed by a rebound.

In turn, UK labor data salvaged Pound: unlike the Euro, the Cable is rising against the dollar, as the UK labor market report released on Tuesday increased chances that the Bank of England will raise rates at the next meeting. The number of jobs increased by 247K (forecast 185K), while unemployment fell to 4.3% (forecast 4.4%). What is important, the wage growth exceeded the forecast, posting 5.8% in annual terms (forecast 5.6%). Wage inflation often precedes consumer price inflation, which the central bank may in turn respond to, so accelerating wage growth has also raised the likelihood that the Central Bank of England will soon begin tightening policy.

From a technical point of view, further uptrend in the pair requires a breakout and consolidation above the short-term trend line (orange dotted line). In case of a rebound from it, a test of the lower boundary of the medium-term trend channel (1.325) is possible from where a serious correction is expected to unfold:

Yesterday's Empire Manufacturing report in the US exceeded expectations, indicating that the US economic recovery is still quite strong. Today the report on US retail sales is due, which in light of strong October US inflation may also beat forecasts, propelling fresh gains of the USD. For the dollar index (DXY), the target may be the upper border of the trend channel - 96.00 points mark. Also, USD rally may be triggered by the comments from the Fed spokesman Bullard later today, who will have to explain how the Fed interprets the acceleration of inflation in October.