SECOND ROUND INFLATION HITS EUROPE, HOW WILL ECB REACT FOR THIS MATTER?
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Author- Mr. Amar – Technical Analyst

The European Central Bank (ECB) will act if it sees second-round inflation effects and an unanchoring of medium-term inflation expectations. Earlier this month, the ECB accelerated its exit from unconventional stimulus and investors increased their bets on higher ECB rates. ECB Vice President Luis de Guindos told the Handelsblatt in an interview published on Sunday that spillover effects and the unanchoring of price expectations are “key factors” for the central bank. He pointed to the triggering of margin calls for commodity derivatives, which would have led to increased collateral to cover open positions.

Risk appetite resurfaced amid hopes for a ceasefire between Russia and Ukraine, helping to bolster euro rates. Recently decimated EUR/JPY led the way higher, gaining +2.9% on the week and posting its second-highest weekly close of the year. EUR/USD gained +1.28%, erasing almost all of the losses of the last two weeks. Similarly, the EUR/CHF rates gained +0.98% to close just a few pips from their open on February 28th. But not all EUR crosses rallied. Indeed, the trio of Australian, Canadian, and New Zealand dollars continued to benefit from the rise in risk appetite and the continued rise in commodity prices. EUR/AUD fell 0.37%, EUR/CAD rose just +0.13% and EUR/NZD fell 0.17%. The long upper wicks of these pairs’ weekly candles suggest that further downward pressure may be imminent.