Reports indicate that Trump and Xi are likely to have a conversation on Friday, according to unnamed sources. This discussion will focus on trade talks between the US and China. There is speculation about Trump’s desire to speak directly with Xi, but it’s expected that the call will follow terms they have already agreed upon. This conversation could happen after a deal is made, allowing Trump to take credit for any progress.

Direct Exchange Between Leaders

Recent comments suggest a direct exchange between the US and Chinese leaders could happen on Friday. This call is not intended for real-time negotiations but to formally acknowledge discussions that have already taken place through other channels. Although there is speculation about the desire for personal diplomacy, it seems the call will proceed only after negotiators finalize the details. This call is framed as a ceremonial gesture rather than an intense negotiation. Its purpose is to show unity and confirm the progress made by lower-level negotiators. This indicates that any changes will likely be reflected in the market before the call takes place. As we approach Friday, it’s important to keep an eye on how news might affect the market. Quiet sessions at the start of the week might shift as traders adjust their positions starting Thursday afternoon, preparing for the expected communication on Friday. Reports suggest that there are expectations surrounding tariffs or mutual commitments, but we should not assume that announcements will definitely follow the call.

Market Reactions and Strategies

One key area to monitor is how the implied volatility curve reacts when the Friday call is confirmed. A steep curve at the short end might indicate rising short-term hedging costs as the announcement approaches. This reflects market uncertainty and suggests that traders expect some direction to emerge, whether from the call itself or from comments made afterward. When it comes to options—especially weekly contracts in major indexes and large export-related companies—caution is necessary. The call may not lead to a policy change but rather serve to reinforce existing progress. Thus, any market changes may come from how participants interpret the situation and assess stability, rather than from unexpected policy shifts. We should avoid relying on high-conviction strategies before we have clear information. Calendar spreads are a good choice if they are aligned with key policy meetings or meetings between the US and China in the coming months. However, using short straddle strategies could be risky due to the potential for a strong market reaction after the call. In addition to examining the derivatives themselves, we should also analyze market flow in the days leading up to the call, focusing on both the volume and pacing of trades. If the market tightens midweek without a clear reason, it could signal that traders are adjusting their positions earlier than usual. This could impact premiums leading into Friday, potentially narrowing realized ranges, even if historical data suggests they should widen. Ultimately, it’s not just the call that matters—it’s how expectations build and are communicated as we get closer to it. Create your live VT Markets account and start trading now.

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