The risks seem to be skewed to the upside for the EUR heading into the ECB - UBS

"No additional stimulus; focus on UK referendum, Italian banks. We don't expect the ECB to deliver any new monetary policy stimulus this week (21 July). Instead, the UK vote to leave the EU will likely be the key focus, while the issues in the Italian banking system are likely to feature highly as well. The ECB will also have an opportunity to comment on the first TLTRO2 auction (results announced on 24 June) and on its Eurozone Bank Lending Survey for Q2, which will be released on 19 July.

Extension of QE beyond March 2017 seems increasingly likely. While the ECB is likely to argue that the UK vote to leave the EU increases the downside risk to growth and inflation, we do not expect it to deliver substantial monetary easing on 21 July. Instead, we expect the ECB to maintain its 'wait and see' mode and continue to focus on the implementation of its measures from March. Nevertheless, we think the to-be-expected deceleration in Eurozone growth will likely skew the ECB's decision further towards an extension of asset purchases beyond March 2017, with a decision likely due on 8 September or 8 December. In other words, we consider it rather unlikely by now that the ECB would switch off QE in April 2017

EUR will focus on the ECB's overall signal for direction. Most of the solutions to enlarge the pool of assets available for purchase could result in steeper curves. But, as we discuss, the link between curve steepness and EUR/USD direction is tentative at best. Instead, what matters for the currency is the overall monetary policy signal and whether it leads to a higher level of EUR rates.Market is already quite dovishly positioned, which may imply upside EUR risks

As we discuss, the market is likely already assigning a non-trivial probability to outcomes that lead to a drastic increase in the pool of assets. This has dragged the level of rates lower and equates to a dovish signal. In the absence of strong evidence to this end, however, we think the risks seem to be skewed to the upside for the EUR heading into the ECB meeting on Thursday".