February 3, 2025

  • Trump starts a Trade War
  • It may be a negotiating ploy, but if so how long?
  • USD soars in risk-off stampede.

 FX at a Glance

USDCAD open 1.4680 overnight range 1.4665-1.4793 close 1.4534

USDCAD is consolidating its post-Trump trade war announcement with prices currently trading well-below the peak in the early hours of Asia. Don’t be fooled, the peak will be revisited soon.  Many analysts are suggesting Trump’s actions are just a negotiating ploy and expect him to back down rather quickly.  They point to the fact that the tariffs impact the entire, highly integrated North American supply chain and that American’s will suffer as badly as Canadian’s-at least in the short-term.

However, Trump doesn’t care. He wrote on TruthSocial, “Anybody that loves and believes in the United States of America is in favor of Tariffs. They should have never ended, in favor of the Income Tax System, in 1913. The response to Tariffs has been FANTASTIC!

FX markets are at the mercy of tariff headlines and for today, nothing else matters.  Trump has nothing but contempt for  Prime Minister Trudeau (see Canada G-7, 2018) and has ducked all of Trudeaus calls for weeks.  He has agreed to talk to him today, perhaps as he strolls the golf course. The call will not likely change things.

The CAD/US10-year yield spread widened to -145.5, a 17.9 jump from last weeks best level.

USDCAD Technicals

The USDCAD technicals are bullish and have been since October.  The uptrend line is intact while prices are above 1.4400.  However, the decisive breach of resistance at 1.4500, followed by the explosive rally above 1.4600, puts a test of the 1.5000-1.5030 area in play. The downside should be limited to 1.4550.  That’s because USDCAD gapped higher at the Asian open and gaps tend to get filled.

For today, USDCAD support is 1.4630 and 1.4600. Resistance is 1.4720 and 1.4760

Today’s Range: 1.4640-1.4750.

Chart: USDCAD daily

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Trump Declares All US Government Agreements are Worthless

President Donald Trump shredded the US-Mexico-Canada Agreement on trade with the stroke of a Mont Blanc pen. Never mind that the tri-country agreement was not even up for review until 2026 or that he was the original mover and shaker behind the trade pact. In one fell swoop, he announced to the world that the US would not honor any agreements or commitments. That means the USA will quit NATO, the Non-Proliferation of Nuclear Weapons, the United Nations, or even the Geneva Convention at the whim of Donald J. Trump. Hey, Taiwan, and all you Asian countries counting on the US to curtail China’s expansionist dreams—you are so screwed. Today, many people around the world are wishing that Thomas Matthew Crooks had a better aim.

You Want It, You Got It, and Investors Pay

Trump threatened Canada and Mexico with a further increase in tariffs if they retaliated. They did. The European Union is already irked at Trump for trying to annex Greenland and warned they would respond firmly to Trump if he slaps the EU with tariffs.

Asian equity indexes tumbled. Japan’s Topix lost 2.45%, while the tariff threat to China knocked 1.75% off Australia’s ASX 200. European bourses dropped like a stone, led by the 1.71% plunge in the German DAX. S&P 500 futures are down 1.37%, while the US 10-year Treasury yield is virtually unchanged at 4.54%.

EURUSD

NY Open: 1.0243
Overnight Range: 1.0211-1.0361

It’s Trade War all day and all the time. The single currency gapped lower to start the week, with some analysts suggesting that traders were not really positioned for a trade war. Most thought that Trump was blowing smoke, and unfortunately, long EURUSD positions were the ones that got smoked. Trump’s promise that EU tariffs will definitely happen soured the mood. A decisive move below 1.0200 leaves a clear path to 0.9530, the Russian invasion of Ukraine low. Eurozone Core HICP was 2.7%, unchanged from December.

GBPUSD

NY Open: 1.2312
Overnight Range: 1.2249-1.2394

Sterling escaped the fallout from Trump’s tariffs relatively unscathed, thanks to Trump’s divide-and-conquer strategy. At the same time he said tariffs were coming for the EU, he said he thought the UK would be able to avoid tariffs, saying, “I think that one can be worked out.” A British spokesman gushed, “We have a fair and balanced trading relationship which benefits both sides of the Atlantic.” UK Manufacturing PMI ticked up to 48.3 from 48.2, but it had little impact on trading.

USDJPY

NY Open: 154.96
Overnight Range: 154.62-155.20

USDJPY started the New York session little changed from the close, although Japanese businesses are heavily exposed to US tariffs on Mexico and Canada. The BoJ Summary of Minutes from the January 24 meeting confirmed that policymakers discussed further rate hikes. Manufacturing PMI fell to 48.7 from 48.0.

AUDUSD

NY Open: 0.6144
Overnight Range: 0.6088-0.6210

AUDUSD gapped lower at the Asian open but has recovered some of its losses and is trading at 0.6144. Australia was caught in the crossfire of Trump’s tariffs on China, which led to falling commodity prices. Weaker-than-expected China Manufacturing PMI was also a negative.

NZDUSD

NY Open: 0.5560
Overnight Range: 0.5517-0.5637

NZDUSD got hammered by Trump’s China tariff plan and expectations that the RBNZ will cut interest rates. NZDUSD data was not a factor.

USDMXN

NY Open: 21.1304
Overnight Range: 20.6847-21.2924

USDMXN soared after Trump slapped 25% tariffs on Mexican imports. Prices were further undermined after the Mexican government said it would retaliate, in defiance of Trump’s threat of higher tariffs if such action occurred.

BTCUSD

NY Open: 95,754
Overnight Range: 91,657-99,477

Bitcoin dropped, then popped, and is in the middle of the range in NY. Trump’s trade war sparked a wave of risk aversion across all asset classes, including Bitcoin.

FX high, low, open (as of 6:00 am ET)

China Snapshot

Closed Lunar New Years

PBoC Fix: 7.1698  (prev. 7.1705) as of January 27, 2025

Shanghai Shenzhen CSI 300 rose 0.41% to 3817.08-close January 27

Off-shore yuan (USDCNY soared to 7.3625, its highest level since 2022 in the wake of Trump’s tariff plans. Chinese markets reopen on Wednesday.

Chart: USDCNH

Sources: Yahoo Finance, Oanda, Investing.com, Google Finance