Japan, China Shares Soar on Tech & AI Optimism, USDX Falls, Earnings Mixed

The EUR/USD pair climbed on Wednesday, gaining 0.30% as speculation intensified around a potential trade agreement between the United States and the European Union (EU)—echoing the deal struck earlier this week between Washington and Tokyo.

Trade-related developments remain front and center for investors, driving sharp fluctuations in sentiment. Earlier in the session, news of the US-Japan deal—which includes 15% tariffs on Japanese imports—weighed on the euro, triggering the initial decline in EUR/USD.

However, a report in the Financial Times suggesting that the EU is nearing a similar agreement with Washington reversed the trend, fueling a rally that pushed the euro past 1.1750. The proposed deal would reportedly include reduced tariffs on goods such as aircraft, spirits, and medical devices, according to unnamed sources familiar with the discussions.

On the economic front, US housing market data presented a mixed picture.

In Europe, the latest data showed a slight improvement in Consumer Confidence, which rose to -14.5 from -14.7, though it remains well below historical averages, according to the European Commission.

Investors are now turning their attention to the European Central Bank’s monetary policy decision, scheduled for July 24. Market expectations suggest a 60% probability that the ECB will leave interest rates unchanged, while the odds of a 25 basis point cut have risen to 40%, up from 37.5% the previous day.

Gold prices fell sharply on Wednesday, sliding below the $3,400 mark amid mounting expectations that the United States and the European Union (EU) are close to finalizing a trade agreement. The deal, reportedly modeled after the one signed earlier this week between Washington and Tokyo, has improved market sentiment and weighed on the safe-haven appeal of bullion.

Gold’s decline began during the Asian session, shortly after confirmation of the US-Japan agreement. Under the deal, Japan agreed to 15% duties on its exports to the US in exchange for broader market access, setting a precedent for upcoming deals with other global partners.

On the data front, US housing figures disappointed. Existing Home Sales for June dropped 2.7% month-over-month to 3.93 million units, down from 4.04 million in May.

Looking ahead, traders are focused on upcoming US releases, including, Initial Jobless Claims for the week ending July 19, with expectations at 227,000, up from 221,000 previously, Durable Goods Orders on Friday, projected to contract 10.8% in June, following a 16.4% surge in May.

Last week’s mixed US data showed consumer inflation rising, while producer prices moderated. However, stronger-than-expected Retail Sales signaled resilient consumer demand, likely driven by price increases rather than volume growth.

Oil prices ended the session with minor losses on Wednesday, as investors balanced optimism over improving trade ties between the United States and the European Union (EU) against ongoing concerns surrounding global negotiations, particularly with China.

The muted movement comes amid news that the EU and the US are advancing toward a trade agreement that could impose a 15% tariff on EU imports, avoiding the more severe 30% tariff set to take effect on August 1. The development follows Tuesday’s breakthrough between Washington and Tokyo, where President Donald Trump announced a deal that spares Japan from additional tariffs in exchange for a $550 billion investment and loan package to the US.

Earlier in the week, oil benchmarks fell around 1% after the EU hinted at retaliatory measures. The European Commission has prepared a €93 billion ($109 billion) counter-tariff package on US goods, which will be voted on by EU member states Thursday. If approved, the measures are expected to come into force by August 7.

On the supply front, U.S. Energy Information Administration (EIA) data released Wednesday showed a stronger-than-expected draw in crude inventories, which fell by 3.2 million barrels to 419 million barrels last week. Analysts surveyed by Reuters had forecast a 1.6 million-barrel decline.

Adding to the bullish narrative, US Energy Secretary Jennifer Granholm indicated Tuesday that Washington is considering sanctions on Russian oil as part of ongoing efforts to pressure Moscow to end the war in Ukraine.

U.S. stocks extended their rally on Wednesday, with the US 500 closing at another record high, as news of a trade agreement between the United States and Japan renewed investor confidence in the prospect of additional deals and eased fears of an escalating trade war.

Investor sentiment was buoyed by the announcement of a trade deal between the U.S. and Japan, which reduces tariffs on Japanese imports to 15%—a notable retreat from the 25% previously threatened by President Donald Trump. In addition to easing trade tensions, the deal includes a commitment from Japan to invest $550 billion in the U.S. economy. Tokyo has also agreed to open its markets further to American automobiles and agricultural products, with particular emphasis on rice.

Investors also turned their attention to corporate earnings, with Tesla and Alphabet having reported their second-quarter results after the bell yesterday. These two tech giants were the first among the so-called “Magnificent Seven” to release their earnings this season and provided important cues for market direction.

Elsewhere in the market, AT&T shares rose after the company topped second-quarter estimates, driven by growth in monthly phone subscribers, though broadband additions fell short of expectations.

The combination of trade optimism, earnings strength, and a resurgence in speculative trading helped power equities higher, setting the stage for a potentially pivotal end to the month as investors await further developments on both the trade and monetary policy fronts.