Beijing has confirmed that Xi Jinping is speaking on the phone with Donald Trump, but Trump has not yet shared his thoughts on the matter. We expect updates on this discussion through Truth Social once the call wraps up. Today, the Australian and New Zealand dollars both rose by about 50 pips. The Australian dollar is getting close to its highest points since May and could reach levels not seen since November if it pushes past that mark. There’s a worry that once the details of the call are made public, a ‘sell-the-fact’ reaction might occur. The market bounced back ahead of the Trump-Xi talk, especially after Tuesday’s announcement of diplomatic discussions. If both countries reduce trade tensions and start working on an agreement, it could boost risk-based assets. What we’re seeing now is optimism linked to diplomatic efforts. The news of the call between the two leaders comes at a time when traders have already begun investing—especially in risk-oriented currencies like the Aussie and Kiwi. So far, the Australian dollar has risen significantly, nearing levels not seen since mid-May, with a chance to test highs last seen in November. In currency markets, this is significant. While no specific outcomes have been established after the call, the hope for decreased tensions between the two nations has lifted markets. Before solid results, investors often price in anticipated changes. This initial surge, occurring before any real trade agreements or economic changes take effect, poses the risk of a reversal once reality hits. This aligns with the ‘sell-the-fact’ warning, highlighting a sentiment that is ahead of actual fundamentals. When market movements happen due to diplomatic events that don’t yet produce clear policy results, it creates challenges. If traders have positioned themselves for positive news but the reality is flat or unclear, prices may quickly adjust. This is the situation to monitor. For traders operating in leveraged situations, the movements in the AUD and NZD are significant and affect other currency pairs viewed as proxies for global yield and risk appetite. When both currencies gain strength, it signals a shift in sentiment toward perceived stability or a belief that external risks may ease. In these circumstances, we would usually expect to see a slowdown in that momentum unless clear progress is made. High beta currencies tend to reverse quickly if their underlying support weakens. Momentum traders benefited earlier this week from the diplomatic news. However, getting continued gains will now require more than just verbal updates. Concrete data and confirmations will be crucial from this point forward. Looking ahead, the focus should shift to whether earlier expectations translate into reality. Any actions that confirm a path toward reduced tariffs or new agreements will likely boost risk appetite. But until that happens, mere discussions will provide a shaky foundation for further strength. Volatility will depend on how both parties interpret the call. If either side communicates mixed messages or confrontational language, we could see a pullback in current gains. Conversely, any definite agreements about future meetings, trade frameworks, or easing restrictions might extend this rally. Short-term positioning remains vulnerable. In such situations, short-volatility trades may seem enticing, but the risk of sharp, news-driven price swings is real and should not be overlooked. Those with exposure to derivatives should prepare for a period of careful balancing, driven more by headlines than solid data.

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