EUR/USD has recorded considerable gains in the Wednesday session. Currently, the pair is trading at 1.1616, up 0.66% on the day. On the release front, German retail sales jumped 2.3%, crushing the estimate of 0.5%. In France, Consumer Spending declined 1.5%, well off the estimate of 0.2%. Preliminary GDP dropped to 0.2%, shy of the estimate of 0.3%. Later in the day, Germany releases Preliminary CPI, which is expected to rise to 0.3%. In the US, the key event is Preliminary GDP, with an estimate of 2.3%. We’ll also get a look at employment numbers, with ADP nonfarm payrolls expected to drop to 191 thousand.
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.
On Tuesday, the euro dropped to its lowest level since July 2017, in response to the political turmoil in Italy. The trouble began when President Sergio Mattarella vetoed a ministerial choice of the two parties which were expected to form a coalition, the League Nord and the Five Star Movement. The prime minister-elect, Giuseppe Conte, then announced that he had withdrawn his mandate to form a government, and Mattarella invited Carlo Cottarelli, a former IMF economist, to form a temporary technocrat government. However, there are reports that the League and Five Start Movement could get another kick at the can to form a government. Another possibility is that Italy will hold a snap election. It’s doubtful if another election would change the political landscape, so Matterella will likely huddle with political leaders and make a supreme effort to avoid another general election.
