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Even though the ECB’s asset purchase program is on track to end this month, Governor Draghi wasn’t exactly feeling optimistic about what lies ahead.

During the ECB presser, he highlighted slower inflation and downside risks, and this somber outlook was reflected in the latest forecasts.

  • ECB head Draghi: Headline inflation likely to fall, mostly due to oil
  • Draghi: Balance of risks moving to the downside
  • ECB downgraded GDP estimate for this year and 2019
  • U.S. import prices slumped 1.6% vs. projected 1.0% slide, previous 0.5% gain
  • U.S. initial jobless claims down from 233K to 206K vs. 226K forecast
  • Canada’s NHPI posted another flat reading as expected

Major Events/Reports:

ECB forecasts and presser

After announcing no change to interest rates and confirming the end of its asset purchase program as expected, ECB Overlord Draghi dished out the downbeat views during the presser.

In particular, he highlighted downside risks to growth, citing:

“[T]he balance of risk is moving to the downside owing to the persistence of uncertainties related to geopolitical factors, the threat of protectionism, vulnerabilities in emerging markets and financial market volatility.”

On inflation, Draghi also warned that headline price levels could decrease over the coming months mostly due to weaker oil prices. He did remain slightly upbeat on underlying inflation thanks to domestic cost pressures and retained expectations for a pickup in medium-tier inflation.

This outlook was reflected in the central bank’s revised forecasts. Staff projections for 2018 growth were downgraded from 2.0% to 1.9% and from 1.8% to 1.7% for next year. This year’s inflation forecast was actually upgraded from 1.7% to 1.8% but the 2019 estimate was also downgraded.

The ECB also released details on its reinvestment plan.

Pause in risk-taking?

Folks on Wall Street seemed to want to take things slow, likely holding out for more clues on how U.S.-China trade talks might turn out. Equity indices ended up mixed:

  • Dow 30 index squeezed out 70.11 points to 24,597.38 (+0.29%)
  • Nasdaq is down 27.98 points to 7,070.33 (-0.39%)
  • S&P 500 index is down 0.53 points to 2,650.54 (-0.02%)

The lack of follow-through on trade developments earlier in the week is being blamed for the shaky market performance, even after a spokesperson from the Chinese ministry of commerce assured that the countries were in close contact over trade.

Major Market Mover(s):

GBP

The pound tossed and turned but pressed on with its steady climb from the earlier session. Bulls might be keeping their fingers crossed that PM May could get enough reassurances to pass the Brexit deal.

GBP/USD fell from 1.2654 to a low of 1.2616 then pulled up to 1.2661; GBP/JPY started off at 143.60 then slipped to 143.32 before advancing to 143.93; EUR/GBP fell below the .9000 mark to a low of .8952, and GBP/AUD is up to 1.7520.

EUR

The shared currency was bogged down by downgraded ECB forecasts and Draghi’s somber tone during the presser but managed to pull off a bounce before the session closed.

EUR/USD fell from 1.1372 to a low of .1.1331 then recovered to 1.1373; EUR/JPY dipped to 128.72 then rebounded to 129.09; EUR/AUD found support at 1.5673 then bounced to 1.5733, and EUR/NZD pulled up to 1.6580.

Watch Out For:

  • 11:50 pm GMT: Japanese Tankan manufacturing index (dip from 19 to 18 eyed
  • 11:50 pm GMT: Japanese Tankan non-manufacturing index (dip from 22 to 21 eyed)
  • 12:30 am GMT: Japanese flash manufacturing PMI (gain from 52.2 to 52.3 expected)
  • 2:00 am GMT: Chinese fixed asset investment ytd/y (increase from 5.7% to 5.9% expected)
  • 2:00 am GMT: Chinese industrial production y/y (no change from 5.9% expected)
  • 2:00 am GMT: Chinese retail sales y/y (increase from 8.6% to 8.8% expected)