Trump Threatens Canada, but USD/CAD Rally Fades

The Canadian dollar staged a dramatic reversal on Monday after USD/CAD initially jumped nearly 900 pips following President Donald Trump’s surprise announcement that he was “terminating” trade negotiations with Canada. The rally proved short-lived, however, with the pair slipping back under the key 1.3700 breakout zone within hours.

Market Doubts Trump’s Resolve

Despite the sharp rhetoric, traders appear reluctant to fully price in a collapse of U.S.-Canada trade talks. Market participants note a familiar pattern often dubbed the “TACO” setup—short for Trump Always Chickens Out—where bold threats are typically followed by partial walk-backs or softened positions. This perception may explain why the USD/CAD spike quickly lost momentum.

Key Levels in Focus

With no official reversal from Trump yet, traders are cautious about chasing fresh upside. As long as USD/CAD remains capped below 1.3700, attention shifts to immediate downside levels at 1.3628 and potentially toward 1.3500 if selling accelerates. On the topside, resistance is reinforced at 1.3770, the upper boundary of the broader long-term range.

Broader Implications

Analysts suggest that until there is clarity on trade policy, volatility in USD/CAD will likely remain elevated. The pair’s latest whipsaw underscores how political headlines continue to overshadow fundamentals, leaving traders navigating a market driven more by tweets and speeches than by data.