Markets Await ECB Rate Decision, UK data, and Big Tech Earnings

The EUR/USD pair trades with a modest negative bias near 1.1410 during the early Asian session on Tuesday as renewed geopolitical tensions in the Middle East underpin demand for the safe-haven US Dollar (USD). Investors will closely monitor the ZEW Economic Sentiment surveys from Germany and the Eurozone later in the day, while the US ADP employment report is also scheduled for release.

Risk sentiment deteriorated after the United States launched another round of military strikes against Iran on Tuesday, reportedly targeting military command centres, air defence systems, coastal surveillance sites, maritime assets, missile and drone launch facilities, as well as communications infrastructure.

Meanwhile, regional tensions intensified after Iran reportedly launched attacks on Bahrain and Kuwait, in addition to targeting tankers in the Strait of Hormuz. At the same time, Yemen's Iran-backed Houthi rebels announced a maritime embargo against Saudi Arabia. The escalating conflict has increased demand for safe-haven assets, lending support to the Greenback and weighing on the Euro (EUR) in the near term.

However, signs of easing US inflationary pressures could cap further USD gains by reinforcing expectations that the Federal Reserve will keep interest rates on hold. According to the CME FedWatch Tool, Fed funds futures imply an 84% probability that policymakers will leave rates unchanged at the July 29 meeting, up from 61.5% a month ago.

Gold attracts modest buying interest during the Asian session on Tuesday, recovering from the previous day's volatile trading. However, the precious metal struggles to build on its rebound and remains below the $4,050 mark as persistent demand for the US Dollar (USD) limits further gains.

Although tensions between the United States and Iran remain elevated following another exchange of military strikes, hopes for a diplomatic solution continue to provide some relief to financial markets. US Secretary of State Marco Rubio reiterated over the weekend that Washington remains open to negotiations with Tehran, helping to temper aggressive safe-haven flows into the Greenback and offering some support to Gold.

At the same time, growing concerns over energy-driven inflation continue to strengthen expectations that the Federal Reserve may maintain a restrictive monetary policy for longer. Disruptions to shipping through the Strait of Hormuz have intensified concerns over global oil supplies, while Yemen's Iran-backed Houthi rebels have announced a maritime blockade against Saudi Arabia.

The resulting rise in crude oil prices has reinforced inflation fears, prompting investors to price in a greater likelihood of higher US interest rates. According to the CME FedWatch Tool, markets currently see roughly an 84% probability that the Fed will raise interest rates before the end of the year, a backdrop that supports the USD and weighs on the non-yielding precious metal.

Oil prices edged lower during Tuesday's Asian session as investors balanced renewed geopolitical tensions in the Middle East against reports of diplomatic efforts aimed at easing the conflict between the United States and Iran.

Market sentiment remained cautious after Yemen's Iran-backed Houthi rebels announced plans to impose a naval blockade on Saudi Arabia, raising concerns over potential disruptions to another major oil exporter. The move has heightened fears of broader supply risks, adding to existing uncertainty surrounding energy markets and global trade routes.

At the same time, reports that Iran had received a proposal for a 10-day ceasefire through international mediators helped temper bullish sentiment. The proposal is reportedly intended to preserve an interim agreement reached in June and create a pathway toward a more lasting resolution to the conflict, offering some hope that tensions could eventually ease.

The combination of ongoing military action and tentative diplomatic progress has left oil markets searching for direction. While geopolitical risks continue to provide underlying support to crude prices, expectations that negotiations could eventually reduce tensions have limited further upside for the time being.

Meanwhile, investors are also awaiting fresh US inventory data after a preliminary Reuters survey suggested that US crude and gasoline stockpiles declined last week, while distillate inventories likely increased. The official inventory figures could provide additional direction for oil prices later in the week.

Wall Street closed lower on Monday as investors remained cautious amid ongoing geopolitical tensions in the Middle East and looked ahead to a busy week of second-quarter corporate earnings, particularly from major technology companies.

Investor focus has shifted firmly toward earnings season, with market participants awaiting quarterly results from major companies, including Alphabet, Tesla, Intel, and Texas Instruments while geopolitical developments also remained in focus

The prospect of de-escalation has become increasingly important for investors, as a reduction in hostilities could improve oil supplies by easing disruptions around the Strait of Hormuz and help limit further increases in energy prices, thereby reducing inflationary pressures on consumers and the broader economy.

Among individual stocks, Apple weighed heavily on the broader market, falling more than 2%, while Microsoft provided one of the strongest positive contributions to the US 500. Alphabet gained 1.5% following reports that its Google division is developing a Gemini-powered server chip designed to improve artificial intelligence efficiency and reduce computing constraints.

Trading activity was relatively subdued, reflecting investors' reluctance to take aggressive positions ahead of a heavy earnings calendar and further developments in the Middle East.