Here is what you need to know on Tuesday, May 24:

Markets seem to have turned cautious early Tuesday following Monday's risk rally. The US Dollar Index, which lost nearly 1% at the start of the week, is posting small daily gains near 102.20 in the European morning and US stock index futures are down between 0.8% and 1.8%. S&P Global will release May flash PMI reports for Germany, the euro area, the UK and the US. April New Home Sales will be featured in the US economic docket as well. Finally, FOMC Chairman Jerome Powell is scheduled to speak later in the day.

Beijing announced on Tuesday that the work-from-home orders will be extended after the city reported the largest one-day increase in the number of infections in a month. Meanwhile, escalating tensions between the US and China seem to be weighing on the market mood as well. United States Trade Representative (USTR) Katherine Tai said early Tuesday that they were still working on the next trade actions in China. Moreover, US President Joe Biden noted that there were no changes to their policy and that the US would get involved militarily to defend Taiwan against China.

EUR/USD climbed to its highest level in nearly a month at 1.0700 on Monday but lost its bullish momentum on the second day of the week. The pair was last trading in the negative territory near 1.0670. In addition to the broad dollar weakness, hawkish comments from European Central Bank (ECB) officials helped the shared currency find demand and fueled the pair's rally. European Central Bank (ECB) President Christine Lagarde said that they were “likely to be in a position” to exit negative rates toward the end of the third quarter and ECB Governing Council member Francois Villeroy de Galhau noted that a deal on rate hikes in the near term was "probably done."

GBP/USD gained more than 100 pips on Monday but failed to break above 1.2600. The pair stays relatively quiet above 1.2550 early Tuesday. Bank of England (BoE) Governor Andrew Bailey noted on Monday that they are prepared to raise the policy rate again if needed but acknowledged that tightening must take income shock into account.

Selling opportunity? Why GBP/USD's rally is unjustified and could lead to a downfall.

USD/JPY struggled to find direction despite the broad-based dollar weakness on Monday and extended its sideways grind near mid-127.00s. Koji Nakamura, head of the Bank of Japan's division overseeing monetary policy drafting, reiterated that they will continue to ease the monetary policy to assist the economy. 

NZD/USD is pushing lower and trading below 0.6450 on Tuesday after having closed the previous four trading days in the positive territory. The data from New Zealand showed in the early Asian session that Retail Sales contracted by 0.5% on a quarterly basis in the first quarter.

AUD/USD climbed to its highest level in nearly three weeks above 0.7100 on Monday but erased a large portion of its gains on Tuesday. The S&P Global Manufacturing PMI in Australia declined to 55.3 in May from 58.8 in April, missing the market expectation of 57.8.

Bitcoin fell nearly 4% and moves up and down in a narrow range below $30,000 early Tuesday. Ethereum broke below $2,000 late Monday and seems to be having a difficult time staging a rebound.

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