Asia taps the brakes as trade truce euphoria hits reality check

Asian equities tapped the brakes Thursday, snapping a four-day rally as traders finally took profits, easing off the throttle from the recent US-China tariff truce optimism. Sentiment shifted decisively from risk-on chasing to cautious profit-taking, with Asian desks unwilling to stretch positions further after Wall Street’s lukewarm performance overnight.

U.S. futures also dipped into the red, confirming the cautious pause after a muted session stateside where the S&P 500 barely managed a slim gain. Tech provided the highlight reel, with Nvidia erasing its entire 2025 slide in one bullish swoop, giving tech bulls a reason to cheer but failing to spark broader market enthusiasm.

With the easy money trade from the trade-deal sugar high clearly peaking, traders are recalibrating their strategies. Reality is back on the menu, and market participants know they must get selective.

The dollar staged a comeback Wednesday, reversing early-session losses after FX traders absorbed the Trump administration's latest signal: currency manipulation pledges won’t be part of trade deals. This subtle but game-changing clarification knocked the "weak-dollar-by-design" trade flat, letting the greenback reclaim lost ground and close with renewed strength.

Gold traders, meanwhile, are nursing wounds after the metal endured a bruising 2.3% tumble, its worst daily loss in a month. The yellow metal sits precariously at critical trendline support, prompting traders to weigh whether this selloff marks a brief correction or signals a more profound shift amid rising inflation anxieties. All eyes are squarely on Thursday’s US PPI data—markets fear tariff-driven inflation might finally bleed into producer costs. If that scenario unfolds, rate-cut bets could evaporate rapidly.

Bond traders are jittery regarding rates, pushing implied Fed rate cuts further down the calendar into 2026—a timeline far beyond recent bullish expectations driven by geopolitical optimism. The risk-on narrative suddenly looks much less straightforward than just a day ago.

Crude oil markets also faced pressure for a second straight day following NBC’s bombshell report: Iran is ready to sign a nuclear deal contingent on immediate sanctions relief. This geopolitical thaw has knocked a significant risk premium out of crude prices, prompting speculative longs to hit the exits. If Iranian barrels come flooding back, traders must rapidly recalibrate their energy market playbooks.

FX volatility continues to churn beneath the surface. Despite official denials, South Korea’s won surged nearly 2%, fueled by speculation that Washington might quietly engineer dollar weakness through trade negotiations. Memories of Taiwan’s recent massive currency surge remain fresh, reminding traders how quickly crowded dollar positions can unwind.

The TWD shock wasn’t isolated—it exposed vulnerabilities in crowded long-dollar trades, especially across Asia-sensitive FX proxies. Although Treasury Secretary Scott Bessent tightly controls currency negotiations, traders remain skeptical of the firewall between FX and trade strategies, keeping FX desks on high alert.

With the dollar bouncing, gold wobbling, oil adjusting to geopolitical shifts, and FX markets on edge, traders are bracing for volatility. Inflation data, nuclear diplomacy, and tariff chess moves converge, ensuring this session won’t stay sleepy for long.