EUR/USD has recorded gains in the Thursday session, continuing the upward movement seen on Wednesday. Currently, the pair is trading at 1.1682, up 0.17% on the day. On the release front, Eurozone CPI Flash Estimate jumped 1.9%, above the estimate of 1.6%. Core CPI Flash Estimate improved to 1.1%, above the estimate of 1.0%. In the US, little change is consumer inflation and spending indicators are expected to remain steady. Core PCI Price Index is forecast to gain 0.1%, and the estimate for Personal Spending is 0.4%. As well, unemployment claims are forecast to drop to 228 thousand. On Friday, Germany and the eurozone release manufacturing PMIs. In the U.S, the focus will be on job numbers, with the release of nonfarm payrolls and wage growth.
With Italy gripped in political turmoil, President Sergio Mattarella is looking for a way to avoid new elections, after an inconclusive election in March. The two largest parties, the League Nord and the Five Star Movement proposed a eurosceptic finance minister, but this was blocked by the pro-European Matterella. This triggered a political crisis which led to a selloff of Italian stocks and bonds. The prime minister-elect, Giuseppe Conte, then announced that he had withdrawn his mandate to form a government, and Mattarella invited Carlo Cottarelli, a former IMF economist, to form a temporary technocrat government. There was talk of an election in the fall or even earlier, but Mattarella has agreed to let the two parties again try and form a coalition government.
Eurozone inflation indicators flexed some muscle in May, boosting the euro on Wednesday. Eurostat is projecting a surge this month, with CPI Flash Estimate rising to 1.9%, its highest level since April 2017. Core CPI Flash Estimate improved to 1.1%, marking an 8-month high. Inflation levels are being closely watched by the ECB, which is scheduled to wind up its stimulus program in September. The ECB reduced its stimulus in January, from EUR 60 billion to 30 billion each month. Still, inflation remains well below the ECB target of around 2 percent.
German retail sales were unexpectedly strong in April, with a sharp gain of 2.3%. This reading ended a nasty streak of four declines. The gain is the strongest since December and raises hopes that second quarter growth will rebound after a sluggish first quarter. Inflation is also expected to improve, with German Preliminary CPI forecast to rise to 0.3% in May after a flat reading of 0.0% in April. The story in France, the second largest economy in the eurozone, was not as bright. Consumer spending plunged 1.5% in April, marking a 3-month low. Preliminary GDP fell to 0.2% in March, down from 0.6% a month earlier.
