ECB is a major focus for today and no change in monetary policy is expected. In the updated economic projections, growth forecast will likely be revised lower, reflecting weaker than expected Q1 activities due to lock downs. On the other hand, inflation forecasts could be revised up to reflect recent rise in inflation expectations, commodity and energy prices.
Reflation trades have sent global yields since February. While this phenomenon is more remarkable in US Treasury, European yields have also increased a lot. The development prompted some cautious comments from officials. But there appears no consensus on the way to handle the issue yet. The markets would be eager to see President Christine Lagarde shedding some likes on whether ECB would recalibrate the instruments again, in response to surge in yields.
Here are some suggested previews:
- ECB Preview – Awaiting Actions in Response to Higher Yield and Revisions on Economic Forecasts
- Will the ECB Fight Rising Yields?
EUR/GBP would be one to watch in reaction to the event. Recovery from 0.8537 was limited well below the falling 55 day EMA, keeping near term outlook bearish. Break of 0.8537 will extend the whole pattern from 0.9499 towards 0.8276 key long term support level.
