U.S. President Barack Obama and German Chancellor Angela Merkel plan bilateral talks and a meeting with residents of a small Bavarian town Sunday ahead of a G7 summit, a German government source said.

"We are planning for Sunday morning, before the summit starts, a meeting of the chancellor and President Obama" with talks expected to focus on "matters of foreign policy" and "common challenges we face," the source said Thursday.

"Part of the plan is a meeting with the citizens of the town Kruen."

Kruen, in the Bavarian Alps, is a town of about 2,000 people located 10 kilometers (six miles) from the luxury resort of Elmau Castle, where Obama and Merkel will huddle with the leaders of Canada, Britain, France, Italy and Japan for two days under tight police protection.

Major issues to be discussed at the Group of Seven summit include the conflicts in Ukraine, Syria and Iraq, while Merkel and Obama are also expected to talk about negotiations for a U.S.-EU free trade pact.

Traditionally strong U.S.-German ties have been tested by the National Security Agency spying scandal that included the alleged tapping of Merkel's mobile phone, and more recently by reports of joint U.S.-German surveillance of European targets, which has put Merkel under domestic pressure.

Obama last visited Germany in June 2013, when he spoke at the iconic Brandenburg Gate. He previously visited in 2008 as a White House candidate, when he drew an enthusiastic crowd of 200,000 people.