Thursday's ECB meeting will be the key catalyst for EURUSD this week. A 10bp cut is expected in the depo rate and a time extension of QE. However, recent ECB comments coupled with the still unimpressive euro area inflation have significantly raised market expectations, with EONIA forwards pricing more than a 10bp cut. It is argued that the ECB will not want to risk an unwinding of the recent rebound in inflation expectations and a squeeze higher in the EUR, which would ultimately tighten financial conditions through the rates and FX channels. 

"Given increased expectations, we see a risk for EURUSD to squeeze higher should the ECB disappoint", says Barclays.

On a risk-reward basis, any EURUSD upside - in case the ECB disappoints by delivering at par with market expectations - will likely be short-lived whereas the risks of more aggressive ECB easing is now higher. 

"We still favour being short EURUSD ahead of the meeting, preferably via options", added Barclays.

On the data front, euro area headline HICP inflation (Wednesday) is expected to have increased to +0.3% in November, with downside risks. Meanwhile, core HICP inflation is likely to ease to +1.0% from +1.1% previously, confirming the imminent need for additional ECB stimulus. Final euro area PMI data (Thursday) is expected to print unchanged.