As we all know, the ECB has but one needle in its compass. Inflation control is its sole mandate and it made a move to control surging Euro area inflation by hiking 25 bp today. The question now is how many more hikes will there be down the road. The market expects at least two more this year and two early next year (basically one per quarter). We’ll see if he says anything to heighten expectations of quicker hikes or if he dampens expectations going forward.
My expectation is that he will endorse market expectations for moderate further rate “normalization” going forward.
The market is very long of EUR/USD on a speculative basis but is well-supported on reserve-diversification from Asian and MidEast central banks. Should specs begin to take profits in earnest in coming days (my expectation) then central banks will be put to the test. I would expect them to stay in “buy dips” mode until flows get one-sided. Then they will step away and let EUR/USD drop, so they can buy cheaper.