By Michael O’Neill
“The Prince of Darkness is dead, long live the new Prince of Darkness.”
President Trump has always had a flair for theatrics, but this past week or so, he outdid himself. He faced unchecked outrage from his MAGA faithful over what they believed was a massive White House coverup of the Epstein files. It started when the Department of Justice (DOJ) and the FBI released a memo that said officials found no “incriminating client list” and no evidence that Epstein blackmailed prominent individuals, and MAGA got ugly.
And they may have a point. Trump often spoke about releasing the information while campaigning, and FBI Director Kash Patel promised the same thing during his confirmation hearings. Even worse, Attorney General Pam Bondi got into the act at the end of February and said that the Epstein client list is “sitting on my desk, right now.”
So, what changed? Several of Trump’s biggest supporters, other Republican politicians, and Elon Musk publicly claimed that it was a cover-up and mused that perhaps Trump figured prominently—after all, Epstein and Trump were besties from the late eighties until 2004.
Let Me Hear You Scream
Trump’s response? Deflection, distraction, and denial. In a flurryof TruthSocial rants complete with all-caps and exclamation points, he reignited trade wars, threatened to fire Fed Chair Jerome Powell (again), and declared “the greatest trade deal in history.”
It worked. Epstein’s name disappeared from the top of the news cycle, replaced by news of trade deals with Japan, Indonesia, and the Philippines. Today, he boasted about the Japan deal again: “I WILL ONLY LOWER TARIFFS IF A COUNTRY AGREES TO OPEN ITS MARKET. IF NOT, MUCH HIGHER TARIFFS! Japan’s Markets are now OPEN (for first time ever!). USA BUSINESSES WILL BOOM!” He also announced trade pacts with Indonesia and the Philippines.
The European Union is reportedly discussing paying Trump’s trade ransom. EU officials are in the process of deciding if they could live with a deal similar to what Japan has agreed, hoping that the economy will survive a 15% tariff on US exports.
(Trade) War Pigs
“Canadian officials are gathered in their masses, just like witches at black masses. Clever minds that plot production, defying Trump’s trade destruction.”
Prime Minister Mark Carney brushed off Trump’s August 1 tariff deadline with a politician’s version of a shrug. Yes, there will be tariffs in any deal, he admits, but “not at any cost.”
He has a kindred spirit in Ontario Premier Doug Ford, joining him in a sleepover at Ford’s Muskoka cottage on Tuesday night. Mr. Ford suggested that both leaders are on the same page, although the Prime Minister may not go all-in on Ford’s idea of charging the US “dollar-for-dollar tariffs.”
Mr. Crowley (I Mean Powell)
Trade deals aside, nothing is a bigger distraction for global financial markets than Trump’s verbal assault on the Fed and Fed Chair Jerome Powell. Trump wants to fire the Fed Chair and has not made any secret of his desire, but he can’t.
Trump is livid because the Fed is accountable to Congress and not him. Trump wants Powell to lower interest rates and tweeted as much today, saying: “Housing in our Country is lagging because Jerome ‘Too Late’ Powell refuses to lower Interest Rates. Families are being hurt because Interest Rates are too high, and even our Country is having to pay a higher Rate than it should be because of ‘Too Late.’ Our Rate should be three points lower than they are, saving us $1 Trillion per year (as a Country). This stubborn guy at the Fed just doesn’t get it — Never did, and never will. The Board should act, but they don’t have the Courage to do so!”
He has made numerous TruthSocial posts over the past six months, saying the same thing.
Those attacks are part of a two-pronged assault on Powell and the Fed. The second prong is the White House attempting to remove him for cause by framing him for “gross mismanagement” over the $2.5 billion Fed building renovation.
Crazy Train
Canadian businesses and market participants are trapped aboard the Crazy Train, desperately trying to manage foreign exchange risk in a Trump tweet environment which makes a mockery out of fundamental, technical, and quantitative strategies. But they have little choice.
The technical picture favours a weaker USDCAD as the downtrend from April guides prices towards a test of major support in the 1.3450–1.3500 area. A decisive move to the downside will extend losses to 1.2960.
However, the fundamentals tell a different tale. The Canadian economy is weak as trade drama takes a toll. April GDP fell 0.1%, weighed down by a 1.9% plunge in manufacturing. Inflation is still tame but ticking higher, and although the most recent employment report looked stellar, the details and outlook are sketchy.
USDCAD is rising and falling at the whim of broad US dollar sentiment, but sooner rather than later, a nastier-than-anticipated Canada/US trade dispute will put a floor under the currency pair, regardless of how the other G-10 currencies are performing.
Because when your trade partner is the new Prince of Darkness who treats global trade relationships like groupies, you risk getting shafted.
