With a preliminary US-China trade deal priced into the markets, any drawback could cause markets to react, writes Adam Button.

U.S. indices extended to new highs, but a late push by China to remove tariffs in order to complete a Phase One trade deal may have cornered President Trump.

China is pressing the United States to remove the Sept. 1 tariffs as part of a trade deal, according to multiple reports on Tuesday. Top U.S. officials are debating whether to make the concession as part of the phase one trade deal. The report says the United States wants more on intellectual property protection and enforcement along with a signing ceremony in the United States in exchange. The latter point may be the area to watch because revelations about a signing location could come before a deal announcement.

Japanese yen crosses and risk trades rose on the reports but they're not necessarily good news. The market has 99% priced in a deal and China pressing on such a key point so late suggests there is still the risk of a blowup. USDJPY is back to where it was before the FOMC meeting.

China has undoubtedly been listening to a bevy of US officials who have touted how close a deal is and watched markets rise in anticipation. That talk may have cornered U.S. officials into bending on final requests from Beijing. At the same time, President Trump has already shown he's not afraid of a U-turn, so there is a risk that China overplays its hand.

Overall, this report alone is no reason to fight the optimism in markets but if signs of strain mount in the days ahead, then we could see an abrupt reversal.

In other news, The Australian dollar got a lift as the Reserve Bank of Australia settled into a comfort zone. The crucial ISM non-manufacturing index is up next. The October ISM manufacturing index is a key risk in New York trade. The consensus is for an improvement to 53.5 from 52.6 previously. An unexpected bump would help to cement the momentum in risk trades and yen crosses.

Adam Button is co-owner and managing director of ForexLive.com and a contributor at AshrafLaidi.com. You can see Ashraf’s daily analysis at www.AshrafLaidi.com and sign up for the Premium Insights. Ashraf's Tweet on indices here.