The magician is becoming a master in promising the earth while giving nothing, as we saw yesterday. The FT notes (ungated) that the numbers are pointing to the fact that it is going to be actions not words that the ECB need to employ to stop Europe slipping into deflation.

I’ve had a chance to sleep on yesterdays comments and my mind is the same. I don’t see any policy change until the core drops below 0.5%. There is one big caveat though. Draghi himself has repeatedly pointed to the core number and that inflation is being driven by energy prices. One comment did strike me yesterday though when a reporter asked about core inflation. Draghi’s response was that we shouldn’t focus entirely on the core as doing so would mean you might as well not concentrate on anything else. That’s paraphrasing but it’s sewn the seed that headline inflation dropping may spur them into action. It will be a fine balance though between headline and core inflation moves that will swing it. A fall in the headline but a rise or unchanged in the core may stay their hand still. A fall in both and my EUR/USD longs will be in big trouble.

I mentioned in the comments yesterday that a central bank has virtually no ability to control imported inflation, e.g energy prices. Just look at the BOE who could only sit back and watch as inflation sat above target for four years. Now, when there’s a recovery in place and inflation should pick up, we’ve seen it fall below target.

This brings us on to the subject of QE. It’s been touted as a means to help the economy and lift asset prices and thus naturally inject inflation back into the picture. There’s one problem with this though. Both the US and UK have done it and inflation has fallen. That was the big worry with QE in that many thought the big risk was a big jump in inflation. At the moment that’s not the case.

So, the ECB could be in a pretty tough spot if they do act and introduce QE. They could very well still see inflation continue to drop into the negative and that will get the market questioning a recovery and ECB policy, which will heap more pressure on a weak euro zone. If the market doesn’t see instant results form ECB action then the question of a strong currency will be the last thing on the ECB’s mind as it will plummet.

The ECB need to see the recovery really kicking in and then natural inflationary pressure coming in also, like wage rises. If it doesn’t then policy action may drag the economy back a few steps rather than nudging it forward a few.

Have they been right in their stance so far or will action be a case of too little too late?

The clock is ticking Mr Draghi.