EUR/USD Forecast Q4 2024: US Election Drama and Geopolitical Risks Drive Volatility

This article examines historical US dollar and EUR/USD market trends to project the pair’s next move. The US dollar’s strong performance in October has led to a significant price correction in EUR/USD. However, the pair is approaching a strong support region and is poised for a potential rebound. The monetary policies of the USA and the Eurozone are key drivers of EUR/USD price momentum in Q4 2024. Additionally, geopolitical factors play a critical role in influencing the market. Technical analysis indicates strong price volatility due to the upcoming US election and geopolitical developments in the Middle East.

Key Market Trends and Projections for Q4 2024

US Dollar Performance in 2024: Economic and Geopolitical Risks

The first two quarters of 2024 for the US dollar were strong. This strong performance was due to the solid economic data. This data includes strong consumer spending and resilient labor market conditions. These market conditions drove the strong performance of the US dollar. Moreover, the Federal Reserve maintained high interest rates between 5.25% and 5.5%. These higher interest rates attracted global investment flows into the dollar. Additionally, geopolitical tensions in the Middle East increased risk aversion. These risks boost the demand for the safe-haven US dollar.

However, the US dollar dropped in Q3 2024 due to the expectations of Federal Reserve rate reductions. The interest rates declined by 50 bps on September 18. However, the moderate rate reduction by the Federal Reserve in upcoming meetings has boosted the US dollar in Q4 2024.

These uncertainties in the US dollar market have impacted the performance of the EUR/USD. On the other hand, the euro has also faced downward pressure due to weaker economic performance in the Eurozone. The falling manufacturing and services data and expected rate cuts by the European Central Bank (ECB) increased the gap between interest rates in the US and the Eurozone. The ECB cut rates by 0.25% on Thursday. This reduced the Deposit Facility Rate to 3.25% and the Main Refinancing Operations Rate to 3.4%. Additionally, Europe’s inflation fell more than expected to 1.7% year-over-year in September.

EUR/USD and US Dollar Index: Rate Cuts and Technical Analysis

The quarterly chart below shows that EUR/USD is declining below the 20 SMA. The RSI also remains below the midline, indicating continued bearish pressure. The long-term trend remains downward if the price stays below the 50 SMA at $1.15766.

To further understand the above explanation, the monthly chart for EURUSD shows the price within the falling wedge. The price consolidates within the red trend lines and shows that only a break above the $1.1276- $1.14 zone will initiate the move higher. Moreover, the price consolidates within the red channel and looks for direction. A break below 1.0448 will trigger a solid downward move.

Q4 2024 began with a sharp decline in EUR/USD, driven by the strength of the US dollar. Since the dollar may trade as a safe haven during geopolitical events, further declines in EUR/USD are possible. The chart below shows the monthly price action of the US Dollar Index. The consolidation on the EUR/USD chart is also highlighted on the US Dollar Index chart.

The index is trading within the blue channel. A break below 96 would signal a break of the long-term channel, potentially initiating a significant drop in the US Dollar Index. However, a break above 107 would continue the upward momentum towards 114.

The Next Short-Term Move in EURUSD?

The EUR/USD has been trading within an ascending broadening wedge since April 2024. Recently, the price dropped due to US dollar strength and reached a strong support zone at $1.0790. The support level of the ascending broadening wedge identifies this key area. The RSI entered the oversold region as EUR/USD approached this support. As a result, price consolidation could lead to a strong rebound from these levels. However, a break below $1.0760 would likely continue the downward momentum.

Key Drivers of EUR/USD Trends in Q4 2024 and Beyond

US Election 2024

The November 5, 2024, US election will likely create uncertainty and volatility in financial markets. This volatility arises as investors respond to potential changes in fiscal and monetary policy based on the election outcome. If the result is unclear or contested, market anxiety may increase. This anxiety may drive investors to seek safe-haven assets like the Swiss franc or gold. Consequently, this could weaken the USD.

The monthly chart below highlights US presidencies over the past four decades. The chart illustrates the volatility in the US Dollar Index during presidential election periods. The US dollar has risen since Joe Biden’s presidency began. This increase was primarily supported by the Federal Reserve’s interest rate hikes.

The chart also indicates that the first interest rate cut occurred during Biden’s presidency, before the 2024 US election. The recent rebound in the US dollar in October 2024 is driven by expectations of less aggressive interest rate cuts in upcoming meetings. This rebound is further supported by the uncertainties surrounding the US election.

Geopolitical Tensions

The second most significant factor impacting the global financial market is geopolitical crises. The recent escalation of tensions in the Middle East is expected to have notable effects on the US dollar. This impact will also be visible on major currency pairs such as EUR/USD, GBP/USD, and USD/CHF. The US dollar strengthens during geopolitical uncertainty as it is considered a safe haven asset. This increased demand for the US dollar results in upward pressure, making it more expensive than other currencies.

In the case of EUR/USD, heightened tensions and rising oil prices may weaken the euro against the dollar. The Eurozone relies heavily on imported energy, which could drive inflation and slow economic growth. Similarly, GBP/USD may experience downward pressure on the British pound. This is due to the geopolitical risks and higher commodity prices. On the other hand, USD/CHF may remain more stable, as both the USD and Swiss franc are traditionally safe-haven. These geopolitical risks will likely support the dollar across the board while pressuring currencies more exposed to European energy and economic vulnerabilities.

Federal Reserve Policies

The US Federal Reserve’s policy decisions will be a primary driver. Market participants expect further monetary easing following the September FOMC minutes. The timing and magnitude of potential rate cuts will be crucial, especially if US economic data remains mixed. Federal Reserve officials’ divergent views on the pace of rate reductions add to market uncertainty. However, a strong US labor market and resilient GDP could support the dollar.

Despite the moderate rate reduction expected in the upcoming meeting, the US dollar is rising due to its safe-haven appeal. Increased commodity prices and bullish momentum in gold may further influence the US dollar. This could impact the EUR/USD pair, regardless of the effects of policy decisions.

Conclusion

In conclusion, EUR/USD has been volatile due to economic and geopolitical uncertainties. The upcoming US election has heightened volatility in the US dollar, impacting EUR/USD. The dollar’s strength, driven by safe-haven demand, puts downward pressure on the pair in the short term. However, EUR/USD is approaching a solid support area, suggesting a potential rebound. A break below $1.0760 would breach this support and signal further downward momentum. The Q4 2024 will be influenced by the outcome of the US election, which will drive the next move for the pair. However, the overall outlook remains uncertain and heavily dependent on the election results.