Dollar ducks, doesn't dive as the street waits on a Trump -Xi call

US stock futures may be drifting off their New York highs and the dollar’s licking at the edges of modest gains, but let’s be clear—this is nothing more than a chess match in a pause. The tape is in “hurry up and wait” mode as traders keep one eye on the Trump-Xi hotline and the other on their PnL, with most not inclined to jump the gun until the political smoke clears. Asian equities barely flinched, mirroring a market that has developed a kind of sensory numbness to the daily barrage of doom-laden headlines. Beneath it all, the broader risk complex is quietly tiptoeing back toward record highs, like a thief returning to the scene of the crime under the cover of bad news fatigue.

Despite accusations flying between Washington and Beijing over who reneged first on the May trade truce, the real story is that markets have begun to price in the possibility that this all ends with a hand—not a breakdown and a light dusting of tariffs, not a heavy overlay. We’re squarely in the “tension-to-tentative-hope” loop again, where optics matter more than substance, and a photo op or a half-hearted promise is all that’s needed to ignite a bid under risk assets.

The dollar, meanwhile, resembles a prizefighter still on its feet after enduring a few body blows—weak ISM, dismal export figures, and a bond market that’s starting to twitch again. Strategic USD shorts were reloaded on Monday as whispers of soft NFPs circulated among inter-dealer lines. Similarly, soft data unsettled the growth narrative, and S899, along with deficit jitters, prompted the bond vigilantes to take action. But here’s the kicker: the DXY’s risk premium continues to hover just below April’s peak, meaning unless the Treasury curve fully buckles or NFP falls off a cliff, there isn’t enough momentum to take the greenback down significantly in earnest. In other words, a substantial amount of negativity is reflected in the price.

The euro isn’t exactly strapping on its rally boots either and is struggling to break free above 1.1450. Eurozone inflation is sliding in the wrong direction, setting the stage for a “cut and dovish guide” moment from the ECB. The street is already leaning towards a 2.5% rate by year-end, so unless Lagarde drops an unlikely hawkish bombshell, EUR/USD is likely to run out of steam near 1.15.

Bottom line: this is the lull before either a diplomatic de-escalation or another tariff tantrum. If Trump and Xi discuss de-escalation and markets sense détente, we could see a melt-up. If the line goes dead, brace for another bout of risk-off. For now, traders are sitting tight—long optionality, short conviction.

FX right now feels like the calm between storms. We’re drifting in that low-vol limbo where ranges are respected, headlines are recycled, and traders are more likely to get whipsawed by positioning shifts than macro surprises. The dollar’s risk premium is still bloated, but no one wants to chase it unless Treasuries crack or data really disappoints. EUR/USD is grinding near resistance, not breaking out; USD/JPY is stuck in “risk-on on risk-off “ limbo; and AsiaFX is more or less shadowboxing with the greenback.

The real takeaway? FX is on mute until the next macro fire alarm rings. It’s not that the stories aren’t there—trade tensions, central bank recalibrations, and soft data are all in the mix—but none of it’s breaking hard enough to move the needle. Traders are leaning into tactical fades, playing ping-pong within well-defined levels, and keeping powder dry for when the narrative gets loud again.

In short: not dead, just dormant. Don’t confuse the quiet tape for resolution—it’s just a pause before the next directional shove.