The EUR/USD pair has consolidated above the 1.1200 level, reflecting the overall weakening of the U.S. dollar. The "bearish attack" we witnessed last week ended in failure. EUR/USD sellers were unable to hold ground within either the 1.10 or 1.11 ranges. The main reason is the lack of any encouraging news regarding progress in U.S.-China or U.S.-EU trade negotiations. The information vacuum around U.S.-China talks and discouraging leaks about the difficult discussions between Washington and Brussels are raising concerns among traders. Once again, the market is talking about the prospects of a U.S. recession—despite a trade truce, the reduced tariffs still apply and are negatively impacting the American economy.

According to JPMorgan economists, the probability of a recession "remains elevated, although below 50%." Analysts at Bank of America estimate the likelihood at 35%, noting that "this is still a fairly high risk."

Clearly, the longer the reciprocal tariffs with China remain in place (even in their current limited form), the greater the risk of a slowdown in the U.S. economy amid rising inflation.

Last weekend's "Geneva meeting," during which high-level U.S. and Chinese officials "agreed to keep negotiating," yielded no real progress apart from a temporary reduction in tariffs. Moreover, yesterday a spokesperson for China's Ministry of Commerce publicly criticized the U.S., stating that Washington is "violating agreements reached during the Geneva trade negotiations." The comment referred to an official warning from the White House that any use of Huawei's artificial intelligence anywhere in the world "violates U.S. export regulations."

Such sharp exchanges suggest the two sides are still far from reaching a deal—it is clear the negotiation process (which hasn't truly begun yet) will be very difficult and likely lengthy (for reference, the first trade war talks lasted about 18 months).

Other significant negotiations—namely between the U.S. and the European Union—have also stalled. Here too, rhetoric is becoming more aggressive, both directly and via media leaks. According to Bloomberg sources, if a deal is not reached by July, the White House plans to raise tariffs to 20% (from the current "preferential" 10%).

Meanwhile, European officials are issuing fairly uncompromising messages, essentially saying that the EU will not "capitulate" in a trade war by accepting maximalist or even loosely "compromised" U.S. terms. For instance, Sweden's Minister for Foreign Trade, Johan Forssell, stated that Brussels will not accept the terms previously offered to the UK (10% tariffs on all goods plus sectoral duties) as a compromise. Additionally, EU Trade Commissioner Maros Sefcovic said the EU will also reject U.S. demands related to VAT and digital regulation.

According to an EU official cited by the Financial Times, the deal between Washington and London cannot be a "template" for Brussels, and if the U.S. insists on its demands, the negotiations will likely collapse. In that case, the EU would implement previously approved countermeasures—tariffs on thousands of American goods (aircraft, cars, auto parts, chemicals, electronics, medical equipment, machinery, wine, and even fish), totaling €95 billion. It's also worth noting that last month, the EU approved 25% tariffs on $21 billion worth of U.S. imports (including wheat, corn, clothing, and motorcycles). These tariffs have been suspended during a 90-day grace period, which ends in July.

In other words, the July deadline is getting closer by the day, yet there are no signs of progress in either the U.S.-China or U.S.-EU talks. On the contrary, the latest news and leaks suggest that trade agreements are still far off. This backdrop continues to weigh on the greenback: today, the U.S. Dollar Index again tested the 99 level, marking a second consecutive day of decline.

Adding fuel to the fire, Moody's downgraded the U.S. credit rating from AAA to AA1—for the first time since 1917. Additionally, Moody's Ratings downgraded the long-term deposit ratings of major U.S. banks, including Bank of America, JPMorgan Chase, and Wells Fargo.

Nevertheless, despite this fundamentally bearish environment for the greenback, EUR/USD buyers have little to boast about. The pair gained over 200 points this week and is now holding within the 1.12 range, but it has not been able to break through the 1.1280 resistance level (the upper Bollinger Band on the H4 chart and the middle Bollinger Band on the daily chart). Long positions become more justified once EUR/USD buyers manage to overcome this barrier, opening the path toward the 1.13 range. The next bullish target, assuming 1.1280 is broken, is the 1.1350 resistance level, which corresponds to the Kijun-sen line on the D1 timeframe.