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12.05.2025 11:00 AM
Has Common Sense Prevailed? (High probability of #SPX growth and a drop in gold prices)

On Monday, the United States announced "significant progress" in trade talks with China following a two-day meeting in Switzerland over the weekend. Markets reacted to this news with a gap-up in futures trading on stock indices and a decline in gold prices.

The prospect that the trade war between Washington and Beijing may end soon is clearly positive. As the world's two largest economies move toward a new trade agreement, global economic tensions, which had threatened to trigger a serious downturn with all its negative consequences, are expected to ease considerably. In this situation, it doesn't matter who "outplayed" whom—Trump or Xi. What's important is that the prospect of ending the trade war, even just its acute and visible phase, is already a positive factor. In my view, this could lead to a noticeable rise in stock prices and a weakening of gold prices, which had previously been actively bought as a safe haven asset.

If the U.S. and China are moving toward resolving trade disputes, that is a clear signal for a rally in stock indices, which may soon retest their February highs.

It is also worth noting that the U.S. dollar remains above the 100.00 mark on the ICE index. What is supporting it? Primarily, it's the Federal Reserve's stance, as outlined last week by Jerome Powell, which is essentially to adopt a wait-and-see approach and avoid premature decisions on interest rates. This policy, along with the potential "peace treaty" in trade, supports the dollar by eliminating, for now, the risk of the U.S. economy sliding into a recession, a key factor that had previously weakened the dollar in the forex market.

At the same time, inflation is falling in the eurozone, the UK, and other major economies, except Japan, where interest rate hikes are expected. This could force local central banks to continue easing monetary policy, which would temporarily pressure the euro, pound, and other currencies against the U.S. dollar.

U.S. consumer inflation data will be released this week. Both headline and core figures are expected to rise month over month and maintain the current pace year over year. If so, this could cause a limited pullback in the dollar, though likely not a significant one, as the Fed is not expected to react to this data immediately. Instead, it will wait for a more noticeable decline toward the 2% target before resuming rate cuts.

What to expect in markets today:

The news about the U.S.–China negotiations will continue to support demand for equities. Gold prices may continue to fall toward $3210.00. The dollar may also receive limited support. As for cryptocurrencies, demand may weaken due to capital flows shifting toward stocks. Overall, we can expect the start of the trading week to be optimistic on the wave of revived common sense.

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Forecast of the Day:

#SPX

The SP 500 futures CFD began trading with a gap on news of progress in U.S.–China talks. Most likely, growth will continue toward 5873.00 and 5983.00 amid increased demand for equities. This trend may strengthen after breaking above the 5786.00 resistance line. A good entry point for buying could be 5750.57.

GOLD

Gold prices are declining amid dollar strength and progress in the U.S.–China negotiations. Given this, further decline toward 3210.00 is expected. The trend may intensify after breaking the 3262.00 support line. A potential sell level could be around 3271.00.

Pati Gani,
Analytical expert of InstaForex
© 2007-2025
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