The EUR/USD pair continues to trade within a narrow price range ahead of announcing the Federal Reserve's May meeting results. Although the outcome is largely predetermined (the central bank is expected to keep all monetary policy parameters unchanged), the major currency pairs have essentially frozen in place. This suggests a coiled spring ready to snap — the EUR/USD pair will either leap into the 1.14 area or consolidate below the 1.1300 target. Everything will depend on the tone of the accompanying statement and Jerome Powell's rhetoric.

In essence, this is classic behavior. The balance must tip one way or another, setting the direction for EUR/USD. However, under current fundamental conditions, one should not place too much trust in the market's immediate reaction, no matter how dovish or hawkish the Fed's tone is. The reason is simple: the fate of EUR/USD in the medium term will be determined not by the Fed or the European Central Bank, but by the United States and China, whose representatives are preparing to sit down for negotiations.

Rumors that Washington and Beijing are ready to resume dialogue began circulating last week. Details varied regarding who initiated the talks (neither side wants to appear conceding in the trade war), but the core message was the same: both parties are testing the waters for a renewed dialogue.

First, Donald Trump claimed that the Chinese were "asking for negotiations" (even hinting at a possible reduction of tariffs on Chinese imports), and shortly after, official Chinese representatives said it was the U.S. that requested the meeting. In other words, a diplomatic thaw seemed to emerge—at least on the surface. Moreover, both sides stopped threatening each other with new tariffs or countermeasures and refrained from further escalation.

And then came more: it was announced that high-level talks between U.S. and Chinese officials are scheduled for May 11–12 (Saturday and/or Sunday) in Switzerland. The U.S. will be represented by Treasury Secretary Scott Bessent and Chief Trade Representative Jamieson Greer. From China, Vice Premier for Economic Policy He Lifeng will attend.

The seniority of the negotiators is especially notable — these aren't low-level bureaucrats or diplomats but high-ranking officials with direct access to their respective leaders. This suggests that the meeting is not a symbolic gesture but could be a meaningful first step toward de-escalating the trade war between the two superpowers. This will be the first official and pre-announced meeting on trade since the White House introduced its new tariff plan and raised tariffs on China to 145%.

Still, overly high expectations could backfire for EUR/USD (and other dollar pairs). There is no guarantee the sides will find common ground or that this meeting will lead to a full-fledged negotiation process. Even Bessent is trying to lower expectations for the upcoming meeting, saying that the visit wasn't officially organized — "the stars just aligned," as both delegations happened to be in Switzerland simultaneously, prompting an informal and non-binding meeting.

Bessent also declined to answer whether Trump might lower tariffs on Chinese goods to 50–55% as a goodwill gesture to kickstart negotiations. He stated, "All options are on the president's table."

Nevertheless, despite Bessent's attempts to downplay the Geneva meeting, markets will eagerly await the outcome — and, more importantly, the follow-up statements. Even if both sides stay silent, the market response could be as intense. No result is still a result (a negative one). Traders would interpret such silence as a signal that preliminary talks have failed. Conversely, optimistic comments from either side would be interpreted in favor of the greenback — even if it's only an agreement "to agree."

In conclusion, the results of the Fed's May meeting (whatever they may be) should be considered, but not overemphasized. In contrast, Wednesday's price fluctuations should not be overreacted to, as the market will now be focused on the upcoming Geneva meeting, which could play a decisive role in the future of the dollar and the EUR/USD pair.