Market rebound builds as trade tone shifts and Trump calms Fed talk

In the FX market, the US dollar snapped higher yesterday, rebounding after a long stretch of weakness. This had been driven by policy uncertainty and Trump’s repeated shots at the Fed. The shift in tone, particularly Trump’s assurance that he has ‘no intention’ of removing Powell as Chair of the Federal Reserve, eased some of the pressure on the greenback. 

Yesterday, the Dollar Index hit a fresh three-year low of 97.55. But it rallied sharply, briefly breaking above 99.00 before pulling back a touch. However, as a sign that the greenback’s problems are not over yet, the Dollar Index was lower again in the European morning session.

The USD/JPY briefly fell below 140.00 yesterday before rallying sharply. This saw the pair top 143.00, although it has since reversed course to trade below 142.00 in this morning’s trade. 

Similarly, both the euro and sterling fell sharply against the dollar yesterday, pulling back from significant highs. Both are steadier this morning and little-changed. 

Many analysts felt that yesterday’s dollar rally may have marked the bottom for the dollar’s downtrend. But that call may prove to be too early. So, what happens over the rest of this week could help decide if the dollar is about to recover in the medium term.

Gold has fallen sharply this morning, having traded at an all-time high of $3,500 yesterday. It looks as if many traders were looking for this level as a signal to take profits. 

The downside move then accelerated on the back of the Trump-Powell headline, which lifted risk sentiment and reduced the immediate need for safe-haven exposure. Gold broke below $3,300 on the European open this morning but then rebounded a touch. $3,300 is an obvious first level of mild support, and it will be interesting to see if it holds. 

However, gold remains overbought, so it’s also possible that there’s a deeper pullback with $3,000 being a much more significant level of support. This kind of move would certainly flush out the weaker hands, particularly those who were late to the rally. 

If $3,000 holds as support, and then the daily MACD resets, perhaps gold could stage another push higher to new highs. But it’s very early days, and it will be important to note the shape of the pullback once it completes. 

In contrast, silver has rallied this morning and is now retesting $33.00 as resistance.

Oil prices were a touch higher in early trade, building on yesterday’s gain of over 2%. Crude prices were supported by a rebound in sentiment around US-China relations. 

This followed comments from President Trump and his Treasury Secretary, Scott Bessent, suggesting that the 145% tariff on Chinese imports is set to come down. That could help set the stage for trade negotiations between the world’s two biggest nations. 

Investors hope this will lead to a thawing of hostilities, the removal of a key hindrance to global economic activity, and thereby an increase in demand for energy products. Oil also got a lift from the imposition of fresh sanctions on Iran. 

Adding fuel to the move was a sharp drop in inventory data, giving investors another reason to hit the ‘buy’ button.

Natural gas, by contrast, continues to struggle. It is still clinging to support near the 3btu level, with no strong catalyst in sight to reverse its recent slump.

Cryptocurrencies were once again a major beneficiary of the return of risk-on sentiment. They built on Tuesday’s rally in early trade this morning, in a move which saw Bitcoin surge above $94,000. Ether jumped close to 6% this morning to trade above $1,800 for the first time in over a fortnight. 

The front-month VIX contract fell sharply to the mid-20s, continuing yesterday’s sell-off and marking a significant pullback from Monday’s elevated levels. The move lower in volatility reflects the sudden positive shift in sentiment, as the market reacts to what appears to be a temporary calming of tensions — both on the trade front and between President Trump and Federal Reserve chair Jerome Powell.

While the VIX's decline suggests improving market confidence, it’s also a reminder of how reactive and headline-sensitive this environment has become. Just 24 hours ago, the index was flashing extreme caution, and though the drop brings some relief, volatility remains well above normal, suggesting traders aren’t fully convinced the coast is clear.

For now, though, the fear gauge is retreating, and it is well below levels hit two weeks ago. This alone has given the bulls more breathing room.

Markets will be digesting a heavy slate of global PMI data throughout the day, along with housing figures, ongoing Fed commentary, and developments from the IMF meetings.

Earnings continue to roll in, with AT&T, Boeing, and Philip Morris reporting ahead of the open. After the bell, all eyes will turn to IBM, which could shape tech sentiment into Thursday’s session.

Tesla’s results were also notable beyond the earnings line. The company is now reportedly eyeing the Indian market, suggesting expansion plans are still very much alive despite a turbulent quarter.

Elsewhere, US port activity for Chinese freight has fallen sharply, a clear sign of trade disruption. Economists now expect the Bank of Japan's next rate hike in Q3.

As ever, Trump and his administration continue to move markets, with trade through Monday and Tuesday providing textbook examples of how quickly the narrative can flip. From sharp selloffs to multi-percent rebounds, the current landscape rewards the nimble — and punishes the slow.

Gold has retreated but remains elevated. The dollar is on firmer ground, and crypto is roaring. Tesla did what was expected — nothing more, nothing less — and the market welcomed the relief.

It’s fast. It’s reactive. And yes, it’s Trump. Buckle up — the swings are far from over.