Euro Area's inflation is down -0.2% in December compared to a year ago. November's print was 0.3% and forecasts called for around a 0.0%, flat reading for December. We have not seen a negative inflation reading since late 2009. The core reading - taking out food, energy, alcohol and tobacco - came in at 0.8%, which was stronger than the 0.7% reading in November, and surprised relative to forecasts around a 0.6% print. This should be no surprise given the persistent decline in oil and energy prices.(click to enlarge; source: eurostat)We can see that the energy deflation is a huge drag, so we can be a little forgiving about the -0.2% headline print. Still, low inflation is a big reason the ECB is still considering a full-scale QE program. German inflation was reported to be at its lowest rate in more than 5 years. The euro does not have anything to rebound on after this week's inflation data points. EUR/GBP Reaction: (click to enlarge: 1H chart 1/7) The EUR/GBP started the year breaking the 2014-lows but rebounded from 0.7745 last week. This week, it is still in bullish correction mode, but price retreated and consolidated ahead of the CPI data. After the CPI release, the initial reaction was muted, and actually Euro-bullish. However, we saw a quick rejection of this rally attempt. Now, the BoE is the next key risk factor. They are due to make a monetary policy statement tomorrow (Thursday, 1/8). The MPC has been delaying a rate hike, and the current window of projection the market has on the rate hike is late 2015 to early 2016. If price can close this week below 0.78, the bearish outlook is likely to continue. Otherwise, even though it is still bearish, there can be some upside risk in the short-term.