Following two days of discussions, both parties aim to develop a framework to reduce tensions. Talks between the US and China were described as rational and candid. Although no major optimism emerged, there is a potential plan for China to ease restrictions on rare earth exports, while the US may lift barriers on key technology exports.

This arrangement serves more as a gesture of goodwill rather than addressing core trade issues. Past agreements, such as the 2019 soybean deal, saw China not fully committing to US purchases, even after the Phase One trade deal. It remains uncertain if both sides will uphold this new agreement in the long term.

Market Movement

The dollar showed minimal changes ahead of European trading. EUR/USD was slightly above 1.1400, while USD/JPY hovered near 145.00. AUD/USD struggled to surpass the 0.6500 level. Caution prevailed in the market, with US futures appearing wary. S&P 500 futures experienced a 0.3% decline, countering previous minor gains. These movements highlight ongoing uncertainty amid the discussions between the US and China.

That’s the essence of the matter: while the talks convey a calmer tone compared to previous rounds, expectations for immediate follow-through remain very low. When filtered through the lens of recent history, especially lukewarm commitments like the agricultural accords several years ago, there’s little incentive to overreact to these headlines. Older deals that initially sounded promising never quite translated into dependable execution. Traders learned that hope isn’t enough.

From where we’re positioned, it appears that most recent price action in FX and equity futures was not about conviction—it was more about absence of strong catalysts. The dollar’s muted behaviour reflects this. EUR/USD staying above 1.1400 signals mild euro resilience, but there’s no strong push behind it. USD/JPY’s position near 145.00 is more reflective of safe-haven positioning than any new optimism. The Australian dollar’s inability to hold above 0.6500 further underlines how traders in the region are staying hesitant.

Equity futures are doing little more than treading water. A 0.3% retreat in S&P 500 futures doesn’t suggest fear, just reluctance to commit in either direction. We are seeing less appetite for risk. A wait-and-see mood dominates, especially as much of the recent diplomatic movement speaks more to the optics than to anything that would alter flows meaningfully in the short term.

Trading Environment

Given the narrow trading ranges and the lack of follow-through from overnight commentary, this is an environment where short-term moves are likely to remain choppy. Directionality will not come from political headlines unless those headlines contain clear, enforceable changes to policy, particularly those that would impact sectors like semiconductors, clean energy components, and heavy manufacturing suppliers.

What’s also clear is that implied volatility remains low across various tenors, which tells us options markets are not pricing in large directional risk. This is helpful information. In these derivatives, we’re observing premiums that do not reflect expectations of swift changes. If there were genuine worries about tail risks, we would see wider skew and more pronounced cost of protection. That simply isn’t happening.

So where does that leave us now? For near-dated setups, we keep our action tight. No broad plays without stronger macro traction. Instead, this window encourages tactical entries, preferably with defined timing and limited exposure.

Sentiment remains soft, not negative—more disengaged than alarmed. Shorter-term derivatives positions could benefit from this pause by layering in structures that thrive in tight ranges, particularly in index-linked instruments. But longer-dated risk remains capped by absence of conviction. Without a catalyst that redefines expectation, traders should not anticipate large shifts in positioning from here.

In the bond world, yields have barely flinched, showing just how little urgency was inferred from the diplomatic theatre. Derivatives curves that hinge on cross-asset volatility remain quiet. Until we see large moves in base rates or concrete changes in supply chains, wider moves are unlikely. Patience may be rewarded more than aggression.

It’s not fatigue—it’s deliberate stillness. And at times like this, that speaks volumes.

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