ECB upcoming economic meeting and its effects on the EUR

The European Central Bank will have an economic policy meeting in Frankfurt on June 3rd, with the ECB's President Mario Draghi, expected to support the quantitative easing program that began in March, and to keep its economic policy unchanged. The main focus will be Draghi's speech, with market players paying attention to two particular matters: the ECB's quarterly staff projections, and Greece.

Watch the ECB Meeting Live Coverage by Valeria Bednarik and Dale Pinkert

When it comes to the first, the ECB has repeatedly stated that previous decisions are already yielding the expected results. Inflation figures have resulted up beating both in the EU and Germany in May, which means the statement will likely be optimistic on inflation and growth, despite deflationary risk is still high. Draghi is expected to reassure that they will keep on buying €60 billion of mainly sovereign bonds, intending to expand its balance sheet by a €1 trillion in total. Last May, the EUR got hit by comments from an EU official suggesting the Central Bank may accelerate the path of purchases ahead of the summer, something that if gets confirmed in this week meeting, may trigger a sell-off in the common currency. Nevertheless, it has been made clear that the change in the pace will be temporal, and market should dilute the temporal effect by buying the dips.

In regards of Greece, tensions have escalated to new extremes these past weeks, as the latest bail-out deadline approaches: the latest agreement when Tsipras got with the government was for four months, meaning it will expire on June 30th. Furthermore, the country will have to face around €1.6B in payments to the IMF, with the first due maturity on Friday, June 5th.

Mario Draghi has been trying to avoid getting involved in political discussions regarding the matter, but after his speech, it will be the turn of journalists to ask questions that most likely will be focused on Greece, the hot spot in Europe, and the ECB's willingness to continue extending emergency credit to Greek banks. The whole point of the ELA, is to be available to European banks that are solvent, but facing temporary liquidity problems. But are Greek banks actually solvent?

News on Friday showed that Greeks have pulled €5.6bn out of their accounts last month, leaving bank deposits at their lowest level since 2004 on fears of a default. Quite unlikely, the ECB can pull off the ELA support line to force the country into a deal, or default. Such announcement tomorrow will be a bomb, an unexpected surprise that can send the EUR in a sell-rally across the board. Chances however, don't favor such decision at this point, when the market talks are that a deal is close.


Nevertheless, I'm inclined to consider the meeting will remain as a non-event ahead of Friday's US employment figures, whilst the EUR may continue advancing on an optimistic ECB and hopes a Greek deal will be achieved this week.