Forex Today: Mideast uncertainty keeps USD supported ahead of next batch of US data

Here is what you need to know on Tuesday, August 4:

The US Dollar (USD) stabilizes after posting moderate recovery gains on Monday as market optimism about a diplomatic resolution to the conflict in the Middle East fades. In the second half of the day, the economic calendar will feature Goods Trade Balance, JOLTS Job Openings and Factory Orders data for June from the United States (US).

Markets turned risk-positive at the beginning of the week as US President Donald Trump called off planned attacks on Iran and said talks will resume from Monday. Trump said late Monday that this was Iran's "last chance" to sign a deal but Iran has denied that any negotiations were ongoing. After falling more than 7% on Monday, crude Oil prices rebound early Tuesday. At the time of press, the barrel of West Texas Intermediate (WTI) was trading near $79.50, rising about 1% on the day.

Analysts at Commerzbank note that the latest leg lower in crude was driven by a sudden shift in geopolitical expectations, after "President Trump had called off what was described as a major planned strike over the weekend to allow more time for negotiations, triggering the sharp drop in oil prices." However, they caution that the underlying risk premium has not fully disappeared, stressing that "the continued uncertainty over the waterway remains a key risk as shipping through the Strait has yet to return to normal."

After opening with a bearish gap and touching its lowest level since mid-June below 99.50 on Monday, the USD Index staged a rebound to end the day marginally higher. In the European morning on Tuesday, the USD Index fluctuates in a narrow channel above 100.00.

USD/JPY fluctuated in a wide range on Monday before closing virtually unchanged. The pair gains traction early Tuesday and recovers toward 158.00.

US-Japan FX intervention seen linked to Dollar liquidity and Treasury selling concerns

Analysts at MUFG note that recent joint FX intervention between the US and Japan came with “some additional interesting details,” including Scott Bessent’s emphasis on a potential “expansion of the FIMA facility for foreign central banks to obtain short-term Dollar liquidity.” They argue that “the fact that this was discussed highlights the likelihood that concerns around possible forced selling of US Treasuries over the medium-term” were an important driver behind the coordinated FX action.

EUR/USD reversed its direction following the previous week's rally and closed in negative territory on Monday. The pair holds steady and moves sideways at around 1.1500 in the European morning on Tuesday.

GBP/USD lost about 0.4% on Monday but managed to stabilize comfortably above 1.3400 early Tuesday.

Gold (XAU/USD) failed to make a decisive move in either direction on Monday and ended the day little changed above $4,000. XAU/USD stays in a consolidation phase above $4,050 in the European morning on Tuesday.

Gold steadies as geopolitical relief meets lingering US rate uncertainty

ING strategists observe that Gold’s recovery remains constrained by conflicting forces, with the metal “likely to remain caught between improving geopolitical sentiment and ongoing uncertainty over US interest rates.” They add that “any further decline in energy prices could help improve the macro backdrop for bullion,” but caution that “expectations for rates to stay higher for longer may continue to limit upside,” keeping gains in check despite a more supportive environment on the geopolitical and inflation fronts.