ECB will probably keep its powder dry and should do

If you were Mario Draghi, or any member of the European Central Bank's (ECB) Governing Council, would you be rushing to inject more monetary stimulus into the Eurozone? Given that you have cut rates to historic lows already and, in the case of the Deposit Rate, as low as you want to go to avoid disrupting the interbank and mutual fund markets, and you've also implemented unprecedented liquidity injection schemes (the now-famous Long Term Refinancing Operations (LTRO's)), buying politicians six months to really get their act together, and you're very disappointed with what they've achieved in that time. Given you've risked tearing your own body, (the ECB), apart from due to the controversial nature of LTROs and the Securities Markets Programme,(SMP), to buy peripheral sovereign bonds-both of which drove the Bundesbank to the brink.  

I don't think so -I think you want to stand by your oft-repeated demand that the next steps must be political.

Draghi will speak at an ECB press conference at 12:30.

Watch the staff forecasts
If the ECB staff forecasts take a discernible turn for the worse, i.e. 2012 growth below -0.3 percent, or 2013 below +1.0 percent, then that heats up the prospects for further ECB easing at future meetings. Similarly, a significant reduction in inflation forecasts below +2.4 percent for 2012, and/or +1.6 percent for next year, would lay similar groundwork.

The crisis could easily get worse
Greek elections on June 17 and the EU summit on June 28 will be ultra-significant and I believe the ECB will want to wait and see how events unfold. If Syriza gains ground in Greece, then bank runs in Greece and Spain could intensify, and then the EU will need to get its act together in an uncharacteristically quick fashion to avoid contagion spreading like wildfire.

The June 28 summit would need to announce, at the very least, concrete plans for a Eurozone-wide common bank recapitalisation fund to the tune of at least Euro 1 trillion, coupled with unlimited deposit insurance, (and that promise could amount to Euro 3 trn).

Given all of the above, the ECB should hold fire and we see a 70 percent chance that they do so, with perhaps only the morsel of an extension of the deadline for expiry of the current full-allotment regime on its regular refinancing operations.

What's left?
If required, if the crisis intensified, as in a disorderly Greek exit which had lead to bank runs in Spain, and especially if the ECB could extract cast-iron commitments from politicians to reform their 'house', then the full array of the ECB tool-box of measures could see daylight-more LTROs, longer LTROs, with even looser collateral requirements, a huge SMP, rate cuts, and even, with no doubt the Bundesbank screeming disapproval, full-blown, overt, Quantitative Easing.

Fade a down-move if the ECB does act significantly today
If however, we do see some act of significant easing today, then fade any knee-jerk move down in the Euro, because that probably means the ECB has obtained an assurance from politicians, to be subsequently revealed, that dramatic reform is in the offing.