The main event next week will undoubtedly be the ECB meeting, which is due on Thursday. The EU hasn’t seen strong inflationary pressures as in the US in recent months, so the ECB has less need to take a hawkish position and talk about the likelihood of early start of policy tightening. Investors do not expect hawkish hints from the ECB and therefore the Euro’s upside potential at the meeting should be limited. It is very likely that EURUSD price action will depend on the USD demand, which changes currently reflect the odds of the Fed tightening in 2Q, which have risen noticeably this week. Firstly, thanks to the strong June inflation report, and secondly, the retail sales report, which beat the forecast. Fed Chairman Jeremy Powell, speaking before Congress, also tried not to rule out the option of early start of QE tapering, if changes in the economy warrants that.

On Tuesday, it is worth taking a closer look at the decision of the RBA and PBOC. The re-imposition of partial lockdowns in Australia will likely keep the RBA in no hurry with rate hikes and hawkish rhetoric while the PBOC is apparently also biased to ease access to credit based on this week's policy adjustments (RRR cut). In part, this should support demand for risk as asset purchases by central banks which increase banking sectors’ liquidity favorably affect demand for risk assets, especially when conditions for economic recovery persist.

On Friday, soft data from Germany and the UK - PMI data, should let investors clarify the level of activity in services and manufacturing sectors. In particular, investors will pay attention to resource prices, supply bottlenecks, backlogs and the growth of new orders to figure out the risk of cost and demand pressures transferred out to consumer inflation.