While the ECB indeed trimmed its GDP outlook for 2018 and 2019 as previewed previously, cutting 2018 and 2019 GDP from 2.1% and 1.9% to 2.0% and 1.8%, respectively, and mirroring the recent reversal in the Citi Eurozone surprise index…

… the market ignored this and instead focused on Mario Draghi’s assessment that the expansion is “still solid” while noting that “uncertainty around the inflation outlook is receding.”

Commenting on inflation, Draghi said that while “measures of underlying inflation remain generally muted” he countered that “domestic cost pressures are strengthening, broadening” as “uncertainty around inflation outlook is receding” and expects “underlying inflation to pick up toward end of year, rise gradually in medium term.”

Subsequently, Draghi also said that the ECB projects “significantly stronger core inflation.”

The mood was boosted by Draghi’s comments on, saying that while “we have to wait and see” so far, all the major Italian ministers and the PM have said they will respect the EU’s budgetary requirements, and there has been no contagion out of Italy to Europe yet.

This, together with the latest miss in US inflation as CPI missed across the board one day after PPI posted its first contraction since January 2017 which slammed the dollar, turned out to be a “perfect storm” for EUR shorts, and forced a broad squeeze in the heavily shorted currency while dollar longs were forced to unwind positions.

As a result, the EURUSD jumped +0.5%, setting a session high of 1.1688 with the pair briefly rising above 100-DMA but stalling ahead of technical resistance at 1.1690.