Markets rally on trade progress, bulls charge into the close

FX markets were relatively subdued in early trade this morning.  The Japanese yen regained some lost ground, having dropped sharply over the previous two sessions. The losses came as the US dollar rallied, and as investors toned down their expectations for additional rate hikes from the Bank of Japan.

The Dollar Index has steadied after hitting a three-year low just over a fortnight ago. It is no longer as oversold as it was back then, although the daily MACD suggests there’s still room to the upside, even if the US dollar remains overvalued historically.

The British pound rallied initially following yesterday’s decision from the Bank of England to cut rates by 25 basis points to 4.25%. That was an unexpected response which came on the surprising breakdown of MPC votes. But sterling soon sold off, and the market expects further easing from the Bank this year.

The euro was a touch firmer against the dollar this morning. But markets are unlikely to break out of their relatively narrow ranges, as traders sit on their hands ahead of US-China trade talks this weekend.

Gold has steadied overnight following two days of significant losses. Yesterday, gold pushed back above $3,400 in early trade before it subsequently slumped below $3,300. The move represented an intra-day high-low range of $125, or 3.6%.

These are the kinds of daily movements which indicate the market’s current indecision. The easy part of gold’s rally is done. Now investors must calculate if gold has topped, or if it can manage another leg up to fresh all-time highs.

Both outlooks are equally likely as things stand. Gold has pulled back from the highly overbought levels of three weeks ago, which increases the probability of another rally. But it may be that gold needs to pull back further, or consolidate for longer, to build a solid base from which it can attempt to take out its recent all-time highs.

Crude oil was firmer in early trade this morning. It extended this week’s rally and pushed front-month WTI comfortably back above $60 per barrel. Sentiment has improved markedly from the beginning of the week. This was when oil gapped lower after OPEC+ announced yet another larger-than-expected production increase.

Since then, it has been announced that the US and China will hold initial trade talks in Geneva this weekend.

In addition, the People’s Bank of China has unleashed a range of stimulus measures designed to shore up its economy and offer some protection from the damage already incurred from the Trump administration’s 145% tariffs on Chinese imports.

Natural Gas also recorded early gains. Yesterday, it hit its highest level in four weeks.

Meanwhile, cryptocurrencies have been on the rise. Overnight, Bitcoin surged above $104,000 to hit its highest level since the end of January. This was just after Bitcoin traded at an all-time high, less than 500 points below $110,000. Ether has had an extraordinary couple of sessions.

Yesterday it gained around 20%, smashing back above the key $2,000 level. Earlier this morning, it came close to hitting $2,500 before pulling back a touch, although it has still managed to add an additional 7% to its price.

The VIX continued to drift lower. In early trade, it was hovering just above 22. While the decline signals reduced near-term anxiety, the level remains elevated relative to historical averages. This suggests that while investor nerves may be calming, underlying caution remains in place.

With trade headlines still capable of swinging sentiment sharply, volatility, though declining, remains an ever-present backdrop.

It’s a quieter day for both data and earnings, giving markets room to breathe after a news-heavy stretch. Nonetheless, there’s a stack of Federal Reserve officials set to speak throughout today’s session.

Investors will be listening closely for any signs of divergence or confirmation of the current rate path. Their commentary could help shape near-term expectations, especially as inflation and growth concerns linger in the background.

Retail investor sentiment showed signs of recovery last week, reaching a three-month high. However, it remains below the longer-term average, indicating that investors remain cautious.

According to Bank of America, equity inflows into Japan and Europe continued for the fourth week in a row, highlighting investor appetite for global diversification amid the US-focused trade storm.

President Trump again made headlines. He insisted that last month’s 10% tariff should be seen only as a baseline, with higher rates likely to follow depending on ongoing trade discussions.

In typical fashion, he also commented on a wide range of topics, including religion, calling the first US-born Pope an honour, showing that his influence continues to stretch across market and cultural narratives alike.

The UK trade deal has been welcomed by markets. It offered a rare moment of clarity and hope against a volatile macro backdrop. However, as always, the real test lies in the progression, or otherwise, of talks with China. Any positive news there could trigger a strong move into risk assets. But expectations are high, so a lack of good news could just as easily trigger a big risk-off move.

Meanwhile, gold remains highly reactive with large intraday swings, while oil continues to rebuild from recent lows. Crypto’s run reinforces the current risk-on bias, and for now, it’s the bulls who have the upper hand.