The U.S. Trade Representative has hinted that the U.S. might take further action regarding the pause on tariffs if talks with China go well. This comes before an upcoming meeting between President Trump and President Xi, with not much hope for major breakthroughs. President Trump posted on Truth Social, saying a trade meeting in Europe between the U.S. and China is going well and is close to finishing. He mentioned a deal involving a company popular with young Americans, which has created a positive mood. President Trump will talk more with President Xi on Friday and insists that the U.S.-China relationship is strong.

Optimistic on Tariffs

There’s a sense of optimism about the possibility of pausing tariffs, which often causes short-term fluctuations in the market. However, history shows that initial positive comments don’t always lead to real policy changes. Therefore, traders should be careful not to take on too much risk based solely on headlines. The ongoing economic tensions are still crucial to consider. The U.S. trade deficit in goods with China hit a record $382 billion in 2022 and is expected to exceed $350 billion in 2025. This indicates the significant structural imbalance remains, suggesting that any political goodwill may be short-lived, making long-term optimistic bets on a trade resolution risky. We think the technology sector, especially semiconductors, will see the most price swings due to this news. In recent years, the Philadelphia Semiconductor Index (SOX) has often moved more than 2% in one day based on trade news. Consider using options on major tech ETFs to manage or speculate on these sharp, short-term price changes in the weeks ahead.

Currency Derivatives Outlook

Currency derivatives, especially for the offshore yuan, offer a direct way to trade this sentiment. The USD/CNH has been trading in a narrow range lately, but it spiked significantly during past trade tensions, such as in 2019 when it surpassed 7.0 for the first time in over a decade. If talks break down, we could see it rise again, while a successful agreement could strengthen the yuan significantly. Given that the market tends to react strongly to rumors and then settle as more details come out, we see value in strategies that take advantage of increased implied volatility. Buying straddles on broad market indices like the S&P 500 before any confirmed meetings allows traders to benefit from big price moves in either direction. This strategy recognizes the high level of uncertainty surrounding the actual outcomes of these discussions. Create your live VT Markets account and start trading now.

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