EUR/USD analysis: inflation taking center stage this Thursday

EUR/USD Current price: 1.1654

• News that the Italian 5 Start Movement and the League will try to form a government brought relief to financial assets.
• EU preliminary May inflation and US PCE price index to be out this Thursday.

Easing risk aversion helped major pairs correct this Wednesday, with the dollar easing against its high yielding rivals and recovering against those considered safe-havens. Headlines indicating that the two major Italian parties are willing to form a coalition and that they withdraw Savona candidacy as economy minister spooked fears. Backing the common currency were German data, which showed that despite the economic growth in the Union has decelerated, it remains far from being at risk. Retail Sales in the country were up 2.3% in April, beating market's expectations of 0.7%, although the yearly reading was softer than the previous and expected 1.3%, resulting at 1.2%. The unemployment rate in the country fell to a record low of 5.2% in May. The most positive figure, however, was May preliminary CPI estimate, up 2.2% YoY, a nice recovery from April's figures and a positive hint on upcoming EU May inflation, to be out this Thursday.  US figures, on the contrary, were disappointing, as the ADP survey showed the private sector added 178,000 new jobs in May, while April's figure was downwardly revised to 163K from the previous estimate of 204K. Also, the Q1 GDP second estimate resulted at 2.2%, slightly below the previous 2.3%.

Inflation is the key this Thursday, as not only the EU will release its preliminary May estimates, with annual CPI seen up to 1.0% from the previous 0.7%, but the US will also release the PCE price index, Fed's favorite inflation measure for April. The core monthly reading is seen at 0.1% while the yearly one is expected to come at 1.8%, both below March final readings.

The EUR/USD pair recovered up to 1.1675, settling in the US afternoon some 20 pips below the level, but considering the pair lost roughly 1000 pips since mid-April, a 10% advance the movement seems just a correction within the dominant bearish trend. Whether this correction could continue or not, will depend on the mentioned inflation releases and political developments in Europe. Technically, and according to the 4 hours chart, the ongoing advance could continue, as technical indicators head sharply higher aiming to cross above their midlines, while the price is advancing above its 20 SMA. There's a long way ahead to the 100 SMA, currently at 1.1780, with gains beyond this last required to consider a more solid recovery ahead.

Support levels: 1.1625 1.1590 1.1550    

Resistance levels: 1.1700 1.1735 1.1780

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