After two days of discussions, both the US and China hope to create a framework to lessen tensions. The talks were described as clear and frank. While there isn’t much optimism, there might be a plan for China to relax restrictions on rare earth exports and for the US to lift barriers on key technology exports. This agreement is more about goodwill than solving major trade issues. In the past, agreements like the 2019 soybean deal saw China not fully committing to US purchases after the Phase One trade deal. It’s unclear if both sides will stick to this new agreement long-term.

Market Movement

The dollar changed little ahead of European trading. The EUR/USD was slightly above 1.1400, and the USD/JPY was near 145.00. The AUD/USD struggled to go above 0.6500. Overall, caution ruled the market, and US futures appeared hesitant. The S&P 500 futures fell by 0.3%, reversing previous small gains. These trends show ongoing uncertainty amid US-China discussions. The main takeaway is that while the talks sound calmer than in the past, expectations for immediate results are low. Recent history, especially past commitments like agricultural accords, shows that many agreements do not lead to reliable follow-through. Traders have learned that hope isn’t enough. In the current market, the recent price action in FX and equity futures isn’t driven by strong convictions but rather by a lack of strong catalysts. The dollar’s muted behavior reflects this. The EUR/USD staying above 1.1400 shows mild euro strength, but there is no strong motivation behind it. The USD/JPY’s position near 145.00 reflects safe-haven behavior more than new optimism. The Australian dollar’s struggle to hold above 0.6500 emphasizes trader caution in the region. Equity futures are simply treading water. The 0.3% drop in S&P 500 futures does not indicate fear but rather a hesitance to commit. There’s less appetite for risk, and a cautious wait-and-see mindset prevails, especially since recent diplomatic moves appear more focused on appearances than on factors that would significantly change market flows in the short term.

Trading Environment

Given the narrow trading ranges and lack of follow-through from overnight comments, we can expect short-term moves to remain unpredictable. Market direction won’t come from political headlines unless they clearly outline enforceable policy changes, especially affecting sectors like semiconductors, clean energy, and heavy manufacturing. It’s also clear that implied volatility across various time frames remains low, suggesting options markets are not anticipating significant directional risk. This is valuable information. Current derivatives show premiums that do not reflect the expectation of quick changes. If there were real concerns about potential risks, we would notice broader skews and increased protection costs, which isn’t happening. So where do we stand now? For near-term setups, we should keep our strategies focused. No wide-ranging plays without stronger macro signals. Instead, this situation calls for tactical entries with clear timing and limited exposure. Overall sentiment is soft, not negative—people are more disengaged than alarmed. Short-term derivatives could benefit from this pause by using strategies that perform well in tight ranges, especially for index-linked instruments. However, longer-term risks are limited due to a lack of conviction. Without a catalyst to shift expectations, traders shouldn’t expect major changes in positioning. In the bond market, yields have barely moved, highlighting the limited urgency inferred from recent diplomatic events. Derivatives tied to cross-asset volatility are also quiet. Until we see significant shifts in base rates or clear changes in supply chains, larger movements are unlikely. Patience may be more beneficial than aggression during this period. This isn’t fatigue—it’s a purposeful calm, and at times like this, that speaks volumes. Create your live VT Markets account and start trading now.

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