Target & Baidu Earnings, EIA Crude Oil Inventories, FOMC Members Speak

The euro continued its rebound against the US dollar for a second consecutive session on Tuesday, with EUR/USD pushing back toward the 1.1300 level. The short-term bullish momentum is giving the pair a lift, though it remains well below the recent multi-year highs near 1.1575.

While European headlines remain limited due to G7 meetings occupying key policymakers, global sentiment continues to hinge on developments from Washington. Hopes are building that the US will strike trade agreements that could ease tensions and persuade the Trump administration to pull back from its aggressive tariff stance. However, with no concrete deals announced and the White House nearing the expiration of its self-imposed 90-day deadline for implementing "reciprocal tariffs," investor confidence is beginning to waver despite a generally upbeat market tone.

Looking ahead, today's economic calendar is relatively light, featuring only mid-tier releases on both sides of the Atlantic. The next major data point will be Thursday’s US PMI figures. Manufacturing PMI for May is forecast to dip slightly to 50.1 from 50.2, while the Services PMI is expected to remain unchanged at 50.8.

Gold prices climbed for a second straight session on Tuesday, as continued weakness in the US dollar fueled demand for non-yielding safe-haven assets. The precious metal rose more than 2% buoyed by heightened uncertainty surrounding US fiscal policy and the recent downgrade of US sovereign debt by Moody’s.

The downgrade, which revised the US credit rating from AAA to AA1 with a stable yet negative outlook, has rattled investor confidence.

Federal Reserve officials continue to strike a cautious tone regarding the economic outlook. However, none have signaled an imminent shift toward rate cuts despite signs of economic deceleration. On Monday, Atlanta Fed President Raphael Bostic said he anticipates a single rate cut in 2025. Meanwhile, Cleveland Fed's Beth Hammack highlighted growing challenges in balancing monetary policy due to government actions, warning of increasing stagflation risks. In contrast, St. Louis Fed's Alberto Musalem suggested current policy settings remain appropriate.

Gold’s rally is also supported by monetary easing from major central banks abroad. During Tuesday’s Asian session, the People’s Bank of China (PBoC) announced a rate cut, followed by the Reserve Bank of Australia (RBA), which reduced its Cash Rate from 4.10% to 3.85%.

In addition, escalating geopolitical tensions continue to support safe-haven demand. The lack of progress toward a ceasefire in the Russia-Ukraine conflict, combined with rising instability in the Middle East, has added another layer of support for gold.

Crude oil prices jumped sharply in early Asian trading on Wednesday, after reports emerged that Israel is preparing for a potential military strike on Iranian nuclear facilities. The news has heightened fears of supply disruptions across the region, prompting traders to price in a growing geopolitical risk premium.

According to a CNN report citing multiple U.S. officials, Israeli leaders are actively preparing for a potential military operation targeting Iranian nuclear sites. While no final decision has been made, the likelihood of a strike has “increased significantly” in recent months, according to the intelligence sources.

The report comes against the backdrop of ongoing U.S.-Iran nuclear negotiations. Iran has reaffirmed that its uranium enrichment activities are "absolutely non-negotiable," while the U.S. continues to insist on a full cessation of such efforts, citing proliferation concerns. The CNN piece also highlighted that the lack of a comprehensive uranium agreement under the previous Trump-era deal may increase the likelihood of military action.

Meanwhile, traders also digested new industry data from the American Petroleum Institute (API), which showed a surprise rise in U.S. crude inventories. Market participants now await official inventory figures from the U.S. Energy Information Administration (EIA), due later today, for confirmation of the API’s report and further clarity on U.S. supply fundamentals.

U.S. equity benchmarks reversed recent gains on Tuesday, with the US 500 ending winning streak amid a temporary slowdown in the tech rally.

Investor attention turned to key retail earnings early in the week, offering insights into the health of the U.S. economy. Home Depot saw its shares decline Tuesday—even as the company reaffirmed its full-year guidance for fiscal 2025 and reported first-quarter results that exceeded revenue expectations. CFO Richard McPhail emphasized that the retailer has no plans to raise prices due to tariffs. This stance contrasted with Walmart’s recent announcement that it might soon increase prices in response to cost pressures driven by the U.S. tariff agenda, much to President Donald Trump’s dismay.

In the technology sector, Tesla Inc. relinquished some earlier gains but closed modestly higher after CEO Elon Musk reassured investors that he plans to steer the company for at least the next five years—underscoring his commitment to retaining control over Tesla’s future.

On the monetary policy front, Fed speakers continued to signal a prolonged pause on rate hikes. St. Louis Fed President Alberto Musalem reassured that current policy is “well positioned” and suggested that any inflationary impact from tariffs is only a temporary boost.

Investors remain alert to developments on the trade front. Following last week’s U.S.-China agreement, market participants are now eagerly anticipating further progress in trade discussions, with high-level trade talks between Japan and the U.S. scheduled to take place later in the week.