Although the euro was given a boost on Tuesday which continued to underpin the single currency on Wednesday, analysts predict a downward trend amid a volatile week.
Higher inflation in the eurozone and signs of a resolution of the Greek debt crisis lent support to the joint currency. However, Greg Gibbs, head of Asia Pacific markets strategy at RBS, expects the euro to start falling again and to "hit new lows of below 1.05 against the U.S. dollar by the end of 2015."
The single currency experienced a heavy selling pressure for a year, as anemic inflation raised expectations that the ECB would launch its bond-buying program, which did come in January. Yesterday, ahead of the ECB meeting, the euro changed the course, though being down around 18.62 percent against the greenback over the past year.
A number of strategists, however, believe that inflation is not that stable and the single currency may depreciate further.
"Core inflation in the Euro area was trending down long before the drop in oil prices," Goldman Sachs said in a note late Tuesday. "Core inflation is likely to stay near current levels in coming months… and this should see the euro weaken against the U.S. dollar."
The bank is predicting the joint currency to fall to $0.95 in a year's time and to $0.80 by 2017.
"Risk reward as tilted in favor of a lower euro, given our expectation for U.S. data to pick up. In fact, we think the hurdle to go through $1.05 is relatively low in coming weeks," Goldman said.
Although, the long-term trend may be downward, investors will have an avalanche of data to digest during the next 24 hours.
"The next 24 hours is extremely important for the euro," Kathy
Lien, BK Asset Management managing director, said.
Although the ECB is not expected to change monetary policy
at its meeting later, the tone of ECB President Mario Draghi's
press conference could have an important impact on the currency.
"If he
is optimistic, the euro will break $1.12, but if he is cautious and
concerned about downside risks, the currency will shed its gains
quickly," she said.
Moreover, the Greek drama is not over yet. Greece is facing a series of payments in June and July, with the big showdown coming on July 19 - each of deadlines giving the euro more swings.
