Greek developments, ECB meeting and euro area data in the spotlight

All eyes will stay on Greece in the coming week with the first June payment to the IMF (c.€300mn) due on Friday. Recent headlines have been somewhat conflicting, with sources (The Guardian) suggesting that the IMF offered Greece a delay to pay the EUR1.6bn it owes in June, with the possibility to make all payments at once at the end of the month. 

Even if the 5 June payment is made, there is a large divergence in views between the two parties, which should continue to weigh on the EUR. Other than Greek political developments, the highlight will likely be Wednesday's ECB policy meeting and subsequent press conference. 

"In the context of mandate-inconsistent levels of current inflation and inflation expectations, the ECB is likely to reiterate its commitment to its PSPP purchases. Nonetheless, the market may have misinterpreted the ECB's recent statement regarding the frontloading of its asset purchases. President Draghi is expected to clarify this during the press conference, noting that the decision was made on the basis of seasonal liquidity considerations rather than the recent increase in bond yields. While this may provide upside pressure to the EUR, any strength is unlikely to persist, and selling EURUSD on any upticks is recommended", says Barclays.

On the data front, euro area inflation (Tuesday) and the final estimate of Q1 GDP (Friday) will be the key prints. Given upside surprises in Italy and Spain relative to the forecasts, Barclays now expects euro area 'flash' HICP inflation to have risen to 0.2% in May from 0.0% in April, with some upside risks. 

On the growth front, euro area Q1 15 GDP is seemed to be confirmed at 0.4% q/q. The release of the breakdown should reveal that private consumption was the main source of growth, as consumer spending was boosted by lower oil prices (+0.3pp). According to Barclays, a significant underutilization of resources and significant labour market slack are expected, both of which favour the long-held view of a multi-year EUR downtrend.