The euro/US dollar currency pair is the most widely traded and most liquid forex pair, backed by two of the world’s largest economies: Europe and the United States of America, respectively. So, it’s no surprise that these two currencies are monitored closely. This article explores how the EUR/USD rate impacts businesses and forecasts for the third quarter of 2024.

The Forex Market and Global Economy

Despite an arguably tight economy globally in the last ten years, the global forex market saw a leap in daily trading volume from $5 trillion to over $6 trillion, signifying an increase in international investments and economic activities at different levels.

The EUR/USD currency pair has gradually solidified its position as the most traded, with corporate organizations and individuals closely monitoring the exchange rate for forex trading, currency exchange, and international transactions.

Key economic factors such as gross domestic product (GDP), inflation rates, employment levels, and interest rates are driving the forex market. This intrinsic link between the economy and the forex market remains crucial for investors seeking profitable opportunities across diverse industries.

The US and European Economies

The US economy entered 2024 on a slightly stronger momentum than the 2022 and 2023 finishes. The real GDP increased at an annual rate of 1.3% in the first quarter of 2024, but weak spending momentum forced analysts at Goldman Sachs to slow down the GDP growth predictions from 3.2% to 2.7%.

The April job estimates showed that job openings fell to their lowest level since February 2021, while the CPI rate rose from 3.1% in February to 3.4% in May 2024.

The US economy grew by 2.4% in 2023 despite predictions of slow growth. The entire country’s total personal income per capita increased by $65.3 billion from March to April 2024 (up by 0.3% from March), while the total disposable personal income (DPI) increased by $40.2 billion.

Although the USD has faced uncertainty in the last 12 months, it has managed to hold on thanks to increased interest rates by the Federal Reserve.

The US also shows economic cracks, evidenced by lower purchasing manager indicators, small business confidence, slower job growth, and stagnant retail sales and industrial production.

Europe is experiencing significant economic growth, matching the US’s GDP growth rate: low unemployment rates and slower inflation.

The European Central Bank (ECB) is expected to cut interest rates from June 6th after keeping the rate high for the last nine months. This is due to the decelerating inflation rate and increased CPI, which rose by 2.6% year-on-year in April 2023 and hit +6.1% in May 2023.

EUR/USD Forecast for Q3

The Fed’s position on higher interest rates has been a significant driver of the USD’s strength in the last few months. The Fed is also expected to maintain high rates for a while longer, attracting more investors to the USD and strengthening it. If the ECB cuts interest rates, the differentials between both currencies increase, pushing the USD higher and placing more pressure on the Euro.

J.P. Morgan’s Global FX Strategist, Meera Chandan, noted, “strength in U.S. activity has been a mainstay of our long-dollar bias” when describing the USD’s potential against other currencies.

The EUR/USD is up 1.58% on the yearly chart, with a primary resistance level at 1.08877 price and significant support around the 1.0609 price. The USD weakened slightly in tandem with bond yields but has remained up from multi-month lows, even as the Euro falls. Traders will shorten the EUR/USD, targeting the 1.08192 and 1.08051 levels. 

For Q3, the EUR/USD will hold above $1 despite potential selling pressure; however, traders must consider the possible shift in the ECB’s rate while targeting shorting levels.

How EUR/USD Rate Will Impact US Businesses

The EUR/USD plays a crucial role in the trading relationship between both economies. Here’s how it affects American businesses.

• Import and Export Costs: A stronger USD means less expensive imports and more profits for local and international businesses, strengthening the economy and, in turn, increasing the USD’s strength.
• International Trade: The US and Eurozone have a long history of economic and trading partnerships, which may significantly impact exchange rate differences. US businesses may partner with foreign companies to import and export goods and services based on the prevailing conditions.
• Borrowing Costs: Higher EUR/USD rates may increase borrowing costs for US businesses if the Fed decides to increase the interest rate to stimulate demand for the USD. If this happens, investors will hold more USD, boosting the profits of local businesses.
• Risk Appetite: The EUR/USD is sensitive to risks and may impact the risk appetite of US business owners in diverse ways. The greed and fear index is essential to determine the market sentiments in such periods.

Key Events To Watch in Q3 2024

Some key events will impact the EUR/USD rate in Q3 2024 and beyond.

• Oil and energy prices
• Unemployment figures
• Food and commodity prices
• The US election
• Inflation and deflation rates
• Interest rates by the Fed, the ECB, and the Bank of Canada (BoC)

Trading the EUR/USD in Q3 2024

Are you watching the EUR/USD for Q3 2024? The pair provides excellent setups for the quarter, with potential for more. A strengthened US dollar may take advantage of the euro’s struggles to cause an upset in the market.

Critical events for Q3 2024 may supply the market momentum to move the price in either direction, so keep an eye on the financial news in the coming months to navigate the impacts.