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The European Central Bank forms the highlight for the Euro exchange rate complex in the week ahead, with analysts at Barclays saying while policy makers will be comfortable with the recent sideways action in the currency they cannot afford to keep quiet.

The Euro's rapid recovery over the summer was met with alarm by members of the ECB's Governing Council, prompting the Bank's chief economist Philip Lane to comment on September 01 that the value of the Euro does matter.

Lane's comments happened to coincide with a reversal from the Euro-Dollar exchange rate's year's high at 1.2011, leading some analysts to suggest the commentary played a part in the rally's termination.

"Regarding the EUR, we expect the ECB to re-iterate its recent message, namely that it is closely monitoring FX developments and assessing their impact on growth and inflation," says Nikolaos Sgouropoulos, a foreign exchange analyst at Barclays in a weekly client briefing.

However, it is observed that the ECB's measure of the exchange rate - the effective exchange rate, which accounts for a basket of Euro rates - has largely gone sideways since September.

Some analysts have argued that it is not so much the absolute level of the Euro that matters, rather the pace at which it rises and therefore the ECB will be comfortable with recent developments.

"We do not think the ECB will be stepping up its rhetoric," says Sgouropoulos.

However, there is a risk that by reflecting any comfort with recent developments the ECB green lights a fresh Euro appreciation.

"At the same time, however, no commentary on the EUR would likely be taken as a sign that the GC is much more comfortable with its level, likely resulting in unwanted currency appreciation, in our view," says Sgouropoulos.

The ECB is expected to keep interest rates at 0.0% while the emergency bond-buying programme size is likely to remain unchanged at €1.35TRN for now, with around half of the fund still remaining available.

The expectations are that the programme may bet additional €500BN and can be extended until the end of 2021 at some point, Bloomberg reports.

The ECB is however tipped by Barclays to lay the groundwork for future easing, the ambitions of which could well dictate how the Euro ends Thursday and trades over coming days and weeks.

Any hint of strong action could well undermine Euro valuations, while being too relaxed on the matter of further policy changes could prompt gains.

"We believe the Governing Council will convey a dovish message, in line with its recent communique, but fall short of announcing any new measures just yet," says Sgouropoulos. "We expect the ECB to prepare the market for a new easing package in December, when it will also update its projections for 2021."

Barclays do not think that changing interest rate cuts are on the agenda for now, and instead expect the ECB to ultimately expand and extend its PEPP as well as the reinvestment horizon of its purchases.

In addition, they also think the ECB will be willing to tweak/maintain some of the favourable terms in its TLTRO III.

"Since the September meeting, EA financial conditions have remained very loose, with the ECB likely taking comfort from the tightening in EGB peripheral spreads, broadly positive risk sentiment and range-bound EUR NEER and breakevens," says Sgouropoulos. "Against this backdrop, however, COVID-19 cases have rapidly risen, adding downside risks to Q4 EA GDP, which will likely be echoed by the ECB."