Asia Mid-Session Bell: Initial risk-on sentiment, fuelled by US-China trade talks optimism, may be a head fake rally

Two-way volatility returned to the US stock market, with major indices declining for a second consecutive session during the overnight US trading on 6 May. The pullback was driven by rising concerns over the economic fallout from trade tariffs, as several US companies flagged risks during their earnings conference calls. These warnings added to market unease surrounding global trade tensions.

The S&P 500 fell by 0.8%, while the Nasdaq 100 dropped 0.9%. The Dow Jones Industrial Average and the Russell 2000 declined by 1.0% and 1.1%, respectively.

Adding to the uncertainty, US President Trump indicated a shift in trade policy strategy, stating that tariff levels and concessions would now be determined unilaterally, rather than through traditional negotiation. In response, the European Union warned that it is prepared to impose tariffs on up to US$113 billion of US goods should ongoing trade talks with Washington fail to produce a satisfactory agreement.

Meanwhile, sentiment improved in early Asian trading today, 7 May, following reports that China’s Vice Premier He Lifeng has been appointed as chief trade negotiator. A meeting with US Treasury Secretary Bessent and US Trade Representative Greer has been confirmed for the upcoming weekend (10–11 May) in Switzerland.

This news lifted S&P 500 and Nasdaq 100 E-mini futures by 0.8% during the Asian session. The US dollar also strengthened, particularly against safe-haven currencies like the Japanese yen and Swiss franc, gaining 0.5% at the time of writing.

However, the upcoming US-China discussions are widely seen as preliminary and aimed at easing tensions rather than finalizing a trade deal. As such, the current rally in index futures may be a short-lived “head fake,” rather than the start of a sustained rebound.

Gold (XAU/USD) saw a modest pullback, falling 1.6% in today’s Asian session after rallying nearly 6% over the previous two days. Despite this correction, the short-term uptrend remains intact, with the yellow metal still trading above its 20-day moving average, which is providing intermediate support around US$3,297.

In China, the People's Bank of China (PBoC) lowered its seven-day reverse repurchase rate from 1.5% to 1.4% and cut the reserve requirement ratio (RRR) for banks by 50 basis points to support domestic demand and offset the impact of US tariffs. PBoC Governor Pan noted that the RRR cut would inject approximately 1 trillion yuan in long-term liquidity. These policy actions boosted investor confidence, lifting the Hang Seng Index by 1.5% in today’s Asian opening.

Gold (XAU/USD) has staged an intraday pull-back of -2.1% in today’s Asian session from yesterday’s 5 May US session high of US$3,435.

The current weakness is likely a corrective pull-back rather than the start of a multi-week corrective decline sequence after two consecutive sessions of total positive gains of 6% that led the hourly RSI momentum indicator to hit an extreme overbought level of 82 yesterday (see Fig 2).

Also, Gold (XAU/USD) has just staged a bullish breakout from its prior two-week (22 April to 1 May) “bullish flag” configuration.

Watch the US$3,265 short-term pivotal support (also close to the upward sloping 20-day moving average), and a clearance above the near-term resistance zone of US$3,420/3,435 may increase the odds of another bullish impulsive up move sequence for a retest on its current 22 April all-time high of US$3,500 before the next intermediate resistance comes in at US$3,550/3,556.

However, a break below US$3,265 invalidates the bullish scenario for another round corrective decline extension to expose the next intermediate support zone at US$3,194/3,162.