On Friday, President Trump abruptly canceled trade talks with Canada, citing the country’s plan to implement a Digital Services Tax targeting American technology companies.
In a strongly worded statement, Trump accused Canada of mimicking the European Union and called the tax a “direct and blatant attack” on the U.S. As a result, he declared all trade discussions with Canada terminated and warned that new tariffs on Canadian goods would be announced within a week. The move came despite both countries entering a 30-day negotiation window earlier in the month.
Markets reacted swiftly, with the Canadian dollar falling sharply (USDCAD moved sharply higher – see chart above), and risk sentiment weakening. Many analysts – including Adam – viewed the move as strategic posturing by Trump to pressure Canada into dropping the tax in exchange for relief from U.S. tariffs. While talks stalled, the situation was likely to still evolve into a deal as both sides weigh their economic interests.
That was then, this is now.
Over the weekend, Canada officially rescinded its Digital Services Tax (as Adam expected) in an effort to advance broader trade negotiations with the U.S.
The price of the USDCAD on Friday already retraced some of the gains into the close and moved below the 100 and 200 hour MAs (blue and green lines on the chart above) into the close, tilting the technical bias lower into the weekend..
Today, the price tried to move higher in the Asia-Pacific session, but found willing sellers against the aforementioned moving averages. The price moved lower on the announcement of the rescission of the tax by Canada. -The low price extended toward a swing area between 1.3633 and 1.3650 but bounced ahead of that level. The corrective move higher in the European session, however, has been able to stay below the falling 100-hour MA. That MA comes in at 1.36887. If the price is to go higher, the price needs to get and stay above that MA and the 200 hour MA at 1.37033.
Absent that, and sellers will be targeting a swing area between 1.36337 and 1.36505. Getting below that level opens the door for further selling, and increases the bearish bias.
This article was written by Greg Michalowski at www.forexlive.com.