The main focus in the eurozone this week will be Thursday's European Central Bank monetary policy decision, which will be accompanied by updated macroeconomic projections, said Daiwa Capital Markets.

The ECB is slated to release the policy statement on Thursday, at 8:15 a.m. ET.

Despite the confirmation of a pickup in eurozone gross domestic product growth in Q3 and headline inflation edging back above the 2% target, the ECB Governing Council (GC) will cut rates for the third successive policy-setting meeting and the fourth time this year, stated the bank.

While certain GC members, such as Banca d'Italia Governor Fabio Panetta, might articulate the case for an increment of 50bps this week, Daiwa expects the Deposit Rate again to be cut by just 25bps to take the deposit rate to 3.00%.

Nevertheless, the bank predicts the GC to adjust its forward guidance to give a clearer sense of the likely future path of policy. Given the uncertainty of the economic outlook, it's likely to reiterate that it will continue to follow a data-dependent and meeting-by-meeting approach.

However, Daiwa also thinks it will acknowledge the increasingly two-sided nature of risks to inflation over the medium term and that a greater emphasis on forward-looking indicators will be required from now on.

More dovish forward guidance should be justified by the ECB's updated projections, which will likely revise down the inflation outlook, added the bank. The ECB's updated projections will likely bring forward from Q4 2025 to mid-year the date at which inflation is expected to return to target.

The ECB should also retain a sub-2.0% full-year inflation projection for 2026. In Daiwa's view, there is a case for the inflation projection for 2027 -- to be published for the first time -- also to be slightly below 2.0%.