The euro may have surged two percent on Tuesday, but analysts expect the single currency will resume its downward march amid a likely volatile week.
"Higher inflation in the Eurozone and signs of a resolution to the Greece crisis has put the euro under short covering pressure," Gregg Gibbs, head of Asia Pacific markets strategy at RBS, told CNBC in a phone interview. Gibbs sees a volatile week ahead for the single currency, but he 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 euro has faced heavy selling pressure for a year, as anemic inflation numbers increased anticipation the European Central Bank (ECB) would launch a massive quantitative easing program. The ECB obliged in January this year, with bond purchases of 60 billion euro (around $67 billion) a month.
But on Tuesday, one day ahead of the ECB's policy meeting, the euro reversed course.
Investors scrambled to buy back the euro, spooked by news that Greece's creditors could present Athens with a "take it or leave it" deal this week and by signs the Eurozone may be putting the threat of deflation behind it. In May, consumer prices rose for the first time in six months, by 0.3 percent on-year, although that's still a long way off the ECB's two percent target.
The euro promptly jumped two percent against the U.S. dollar on the day and was fetching $1.115 in mid-day Asian trading Wednesday. The common currency is still down around 18.62 percent against the greenback over the past year.
But analysts still believe the euro's depreciation against the U.S. dollar is inevitable.
For one, inflation may not truly recover.