USD/CAD: Trade Whipsaw Signals Reversal as Tariff Threat Eases

• Canada secures 30-day tariff reprieve with US border deal
• USD/CAD reverses after hitting weakest level since 2003
• Shooting star, evening star patterns signal possible top
• Support at 1.4400 in focus for next directional move

Summary

Canada has secured a 30-day tariff reprieve from US President Donald Trump, agreeing to a $1.3 billion border plan that includes “new choppers, technology and personnel, enhanced coordination with our American partners, and increased resources to stop the flow of fentanyl,” according to Canadian Prime Minister Justin Trudeau.

Trump had previously signed an executive order to introduce 25% tariffs on Canadian imports on February 4, excluding some energy items.

USD/CAD was whipsawed on the news, reversing a more than 2% surge that saw the Loonie fall to its weakest level since 2003 earlier in the session. With the dust settling, markets now have a brief window where trade headlines may take a lesser role in determining USD/CAD direction.

Canada Deal Details

Outgoing Canadian Prime Minister Justin Trudeau revealed details of the deal in a late-afternoon phone conversation with Trump, stating nearly 10,000 frontline personnel will eventually be deployed to protect the border. Trudeau also committed to appointing a ‘Fentanyl Czar,’ designating drug cartels as terrorists, and launching a Canada-US Joint Strike Force to combat “organized crime, fentanyl, and money laundering.”

Trudeau said he has also signed a new intelligence directive on organized crime and fentanyl, initially backed by $200 million in funding.

Sign of Things to Come?

In such a turbocharged partisan political environment, there’ll be no shortage of opinions on who won and who lost with this deal.

Some will argue Trump got exactly what he wanted on border policy, strengthening his hand for further trade negotiations when the next tariff deadline arrives in early March. But Canada didn’t fare too badly either, avoiding immediate tariffs while striking a deal that will be incredibly difficult to measure in terms of success—especially within just 30 days.

Trump could have simply followed through with the executive order and waited to see if there was an adequate response, but he didn’t. That’s telling. He also left room for negotiation, announcing the tariffs on Saturday but delaying implementation until Tuesday.

Putting the political posturing aside, the initial moves suggest a clear willingness to negotiate. It also reinforces how markets may respond to future trade tensions—buy dips in risk.

Sure, Trump will try to extract more concessions from Canada, Mexico, China, and the European Union—everyone knows that—but until he follows through on his threats, markets will likely look past the temporary drama.

While this creates fat left-tail risks for riskier assets—evident in Monday’s initial reaction—until we see true escalation and follow-through, history suggests holding sustained bearish stances may prove costly.

Event Risk Elevated

With the immediate tariff threat avoided, FX market focus may briefly return to traditional drivers such as economic data and interest rate implications. The calendar over the next four days is packed, headlined by the US non-farm payrolls report and ISM services PMI on Wednesday.

Assuming no fresh trade headlines—which is a big assumption—both events have the potential to whipsaw USD/CAD and the broader FX complex.

Source: TradingView

The Federal Reserve speakers’ calendar is also busy, though more emphasis should be placed on Michelle Bowman and Adriana Kugler’s remarks as they appear after the payrolls report.

With so much good news already priced into the US economic outlook and fewer than two full Fed rate cuts expected by markets in 2025, risks appear skewed towards more dovish outcomes or comments.

Just last week, Fed Chair Jerome Powell reiterated the FOMC does not believe further labour market weakening is necessary to achieve its inflation mandate. Keep that in mind.

Source: TradingView

USD/CAD Technicals

Monday’s shooting star daily candle for USD/CAD was one of the more dramatic moves for a major FX pair, delivering a 2.8% trading range and sending the Loonie to a 22-year low in the process.

Setting aside the trade and tariff headlines, the price action suggests we may have seen a near-term top. Not only did Monday produce a shooting star but a three-candle evening star pattern was also completed. Momentum indicators are turning bearish, with RSI (14) breaking its uptrend and MACD likely to confirm the signal imminently.

Source: TradingView

For now, the reversal has stalled at uptrend support established on January 20. The pair has also been nibbled at on dips below 1.4400 in each of the past five sessions, including early Asian trade on Tuesday.

A convincing break and close below 1.4400 would strengthen the case for a deeper pullback, with the 50-day moving average and minor support at 1.4270 coming into focus. Below that, 1.4195 and 1.4090 are additional levels to watch.

Alternatively, if USD/CAD fails to break below 1.4400, it opens up a potential bullish setup where longs could be established above, with stops placed below for protection. Former swing highs from 2020 and 2016 could serve as upside targets.

-- Written by David Scutt

Follow David on Twitter @scutty

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