As a currency trader, i believe markets are deeply confused or I am when it comes to the issue of the ECB attacking inflation. Every time expectations of interest rates rising from ECB direction occurs the Euro jumps up,and this morning is another example of this.

At same time, markets constantly look for continued support or expansions to the ECB's periphery bond buying and support of the union's stability efforts in general for financial welfare of troubled nations as signs to support the Euro and the union in general.

To me, these two facts are not congruent but markets are treating them as such. When the ECB is not dovish enough, markets punish the euro, but when the ECB is distinctly hawkish markets support the Euro?

What is going on here?

Pressure on rates, growth, and liquidity seems like a death trap for a union whose periphery nations are plagued with high outstanding debts and are threatened by a slip up in short term liquidity financing. Higher rates are designed to attract capital but at the same time high rates will destroy the solvency of some nations as debt servicing sky rockets. Why would a hawkish ECB, pushing a relatively debt deflationary scenario, be bullish for the currency? In my opinion you cannot stand in the way, but if you can sense a top for the pricing in of interest rates, this is the time to short the Euro as the consequences of a follow through will be devastating.

Do you think the ECB wants a higher or lower exchange rate?

If they're truly worried about inflation, they'd try and keep their currency strong, wouldn't they?

to be honest, im not so sure. If anything, from recent experience im thinking they actually want a higher currency because they have always done something to revive the euro when it falls, rather than use that as cause to celebrate.

i think most of the trade wars anyways are occurring within the union, so an effect on the euro does not aid that end.

ya you'd think. but like all central banks, they want to have their cake and eat it too. They can't fight inflation and increase their bond buying and back door swap deals, etc. But thats essentially whats on the table for them. This is the trouble with inflation when economic problems remain, you know longer get the appearance of a free lunch and can only fight inflation while cutting off dependents.

This is why im confused that the market has no clued into this fact. Somehow, there is confidence that europe will fight inflation and keep all the nations under support, an impossibility as i see it. The only extent their able to do that is thanks to the support from china and japan, but still the ECB is integral to the financial stability of the peripheries in the short term.

The better thing to do is probably analyze what inflation rates are in the various Eurozone countries, paying particular attention to the strongest ones. Germany for instance: high inflation rate; benefits from weak Euro because they're an export-oriented economy. However, is inflation so high that they really need to start seeing an appreciating Euro? I don't know. If yes, do they have the levers to be able to push for this within the ECB while growth rates in the periphery is so low? Probably, since the EFSF program is dependent upon the stronger countries.