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'Perfect storm' to lead to euro-dollar parity by December?

The prospect of the euro falling to equal the dollar has returned with a vengeance after the European Central Bank signaled on Thursday that it would consider extending its massive bond-buying program well into 2016 and even beyond.

Following the bank's decision to hold interest rates at record lows, ECB President Mario Draghi told a press conference that the "degree of policy accommodation will need to be re-examined in December" as inflation remains stubbornly low amid emerging market weakness.

This was widely interpreted as a sign that the bank's trillion euro ($1.1 trillion) quantitative easing (QE) program could either be expanded or extended beyond its original September 2016 deadline.

Euro Dollar rates currency
Stoyan Nenov | Reuters

The euro slumped to a three-week low against the dollar, falling around 1.3 percent to $1.11, Thursday after Draghi said the ECB was open to a "whole menu" of policy instruments. On Friday, it fell below to as low as $1.1072 at one point in Asian trade. By 7a.m. London time, the single currency was trading back a tad above $1.11 again, however.

It's been a roller-coaster ride for the euro since the central bank launched its quantitative easing (QE) program in March when it hit a 12-year low, of $1.0560 at one point, against the dollar.

'Perfect storm' coming?

Analysts now believe a "perfect storm" could be brewing if the ECB eases further in December and the U.S. Federal Reserve chose that month to hike interest rates.

These conditions would strengthen the dollar further against the euro, just as the single currency was weakened by more ECB stimulus.

Richard Yetsenda, head of global markets research at Australia & New Zealand Banking Group (ANZ), told CNBC Friday that if there was a "perfect storm" of a Fed rate hike and more ECB stimulus coinciding in December, parity could be on the cards.

Read MoreECB President Mario Draghi set to launch QE2?

"(Parity) is totally possible and it may (happen). In fact, one of the things that has kept the euro elevated is that there's been this structural euro short in the market, and whenever you've had an escalation of Fed tightening expectations you've also had an escalation in risk aversion, and they've tended to work in opposite directions on the euro," Yetsenda told CNBC's "Capital Connection" Friday.

"But if the Fed can hike and the ECB's also doing some easing...then that would be a more bearish scenario for the euro and we could potentially see a break from this $1.05 - $1.15 range we've been in for quite a while."

Other forex analysts highlighted Draghi's comments on the ECB not having an explicit preference for one policy instrument and that it was prepared to cut its deposit rate deeper into negative territory, which would effectively increase the fees the ECB charges to take deposits of excess reserves.

"The ECB had previously signaled that adjusting their QE program was the most likely next easing step," Lee Hardman, currency analyst at the Bank of Tokyo Mitsubishi UFJ (BTMU) said in note Friday.

"It is an important negative development for the euro as the combination of potentially deeper negative rates and expanded QE should prove more effective at weakening the euro. The ECB appears very sensitive to recent euro strength which was clearly highlighted as a downside risk to the outlook inflation, and has actively increased their efforts to encourage a weaker euro."

The ECB's policy announcements supported BTMU's forecast for EUR/USD to decline to 1.0900 by year end., he said. That forecast was also shared by Ian Shepherdson, chief economist at Pantheon Macroeconomics, although he went further saying in a note Friday that the euro could fall to $1.08 in December.

Not so fast

Not all forex analysts were convinced, however. Kit Juckes, global head of foreign exchange strategy at Societe Generale, said he didn't believe Draghi's words alone were enough to weaken the currency further.

"I still think words aren't enough for the euro to stay down, and nor is bond-buying. (But) lower (deposit) rates would/will do it," he said in a weekly forex note Friday..

"It is doubtful if increased asset purchases by the ECB…will weaken the euro meaningfully beyond their recent cycle lows. Negative rates will have a bigger impact than conventional QE. Without a Fed rate hike expected before year-end, the dollar will struggle to gain ground among the G3 (dollar, euro and yen) this Autumn."