Japan Deal Boosts Sentiment; S&P Record Close; Crude Stable

The EUR/USD rose firmly on Tuesday ending the session 0.37% higher as improved global risk sentiment weighs on the US Dollar. The pair remains well-supported despite lingering concerns that the European Union (EU) and United States (US) may not finalize a trade agreement before the August 1 deadline.

While the US recently announced a new trade agreement with the Philippines, there has been no progress reported with the EU. US Treasury Secretary Scott Bessent stated that Washington prioritizes the quality of deals over their timing. When questioned about a possible extension to the negotiation deadline, he deferred the decision to President Donald Trump.

As trade tensions linger, EU officials are expected to meet with their Japanese and Chinese counterparts later this week, with talks likely to focus on defense and economic cooperation. However, hopes for significant breakthroughs with China remain limited, according to sources cited by Bloomberg.

Investor focus now turns to the European Central Bank’s (ECB) monetary policy meeting on July 24. The central bank is widely expected to leave interest rates unchanged as inflation trends closer to the ECB’s target. Ongoing trade uncertainties add another layer of caution to the outlook.

This week’s European economic docket features key releases including Consumer Confidence data, Flash PMIs for July, and the ECB’s policy announcement. In the US, markets will be watching housing data, S&P Global Flash PMIs, Initial Jobless Claims, and Durable Goods Orders.

Gold prices extended their winning streak into a second consecutive session on Tuesday, climbing over 0.9% as US Treasury yields continued to decline, pressuring the US Dollar. Growing investor uncertainty around the outcome of US trade negotiations further fueled demand for safe-haven assets.

US Treasury yields fell for the fifth session in a row, dragging real yields and the US Dollar Index lower.

Risk sentiment remains fragile as speculation grows that the EU and the US may fail to reach a trade agreement before the August 1 deadline. The lack of progress has raised concerns among investors, boosting safe-haven flows into gold.

Adding to the uncertainty, US Treasury Secretary Scott Bessent revealed plans to meet with his Chinese counterpart next week, suggesting the August 12 trade deadline might be extended. He also signaled that new trade agreements with other countries are forthcoming.

The US economic calendar is relatively light, with key releases including housing data, Initial Jobless Claims for the week ending July 19, and Durable Goods Orders. While recent data has been mixed, inflation remains a focal point for markets.

Markets remain confident that the Federal Reserve will keep interest rates unchanged at its next policy meeting on July 30. Current market pricing shows a 94% probability of a rate hold, with just a 6% chance of a 25-basis-point cut.

Crude oil prices extended their decline for a third consecutive session on Tuesday, weighed down by diminishing expectations of a trade agreement between the United States and the European Union, fueling broader fears of an economic slowdown in some of the world’s largest energy-consuming regions.

According to diplomats, the European Union is preparing a broader package of countermeasures as the likelihood of reaching a trade agreement with Washington diminishes. U.S. President Donald Trump has set an August 1 deadline for new deals and has threatened a 30% tariff on EU imports if talks collapse. Chances of a US-India interim trade agreement also appear to be slipping, as reported by two Indian government officials.

Despite the downward pressure, some analysts believe the slide in oil prices may be partially capped if the U.S. administration softens its tariff stance or delays implementation.

Late Tuesday, the American Petroleum Institute (API) reported a 577,000-barrel decline in U.S. crude inventories for the week ending July 18. This compares with a hefty 19.1 million-barrel build the prior week, providing some modest relief to oil markets.

Gasoline stockpiles fell by 1.2 million barrels, while distillate inventories—which include diesel and heating oil—rose by 3.48 million barrels, signaling mixed signals for refined product demand.

Traders now await the official Energy Information Administration (EIA) report, scheduled for Wednesday at 14:30 GMT for further confirmation of inventory trends.

U.S. equities posted a mixed performance on Tuesday as investors digested a wave of corporate earnings and grappled with renewed concerns over the economic impact of ongoing trade tensions. The US 30 and US 500 ended the session in positive territory, while the US Tech 100 declined, weighed by underperformance in major technology stocks.

The second quarter earnings season has gained momentum, with nearly 20% of S&P 500 companies having reported results so far.

However, investors are growing increasingly wary of how President Donald Trump's trade policies are affecting corporate margins. Notably, General Motors reported a 32% drop in Q2 core profit, citing $1.1 billion in tariff-related costs as a major drag on earnings.

Weakness in tech shares was attributed to growing concerns about global supply chain disruptions and regulatory uncertainty tied to geopolitical tensions.

Prospects for a U.S.-EU trade deal appeared increasingly bleak as the August 1 deadline set by the White House draws closer. In response, EU member states are reportedly preparing a suite of “anti-coercion” countermeasures aimed at mitigating potential U.S. tariffs.

Meanwhile, U.S. Treasury Secretary Scott Bessent confirmed plans to meet with his Chinese counterpart to discuss the potential extension of the August 12 deadline for trade negotiations between the world’s two largest economies. Talks are expected to focus on sensitive areas such as technology transfers and rare earth materials.