- Yesterday’s ex-post Trump’s inauguration speech US dollar sell-off has started to reverse course.
- In less than 24 hours after adopting a milder trade tariffs plan towards US major trading partners, Trump has changed his stance to mention that 25% trade tariffs may be enacted on Canada and Mexico on 1 February.
- The CAD has erased almost all its earlier gains against the US dollar.
- The CAD/JPY may be on the brink of kickstarting a potential medium-term downtrend phase.
US President Trump has reverted to his usual “element of surprise with shock and awe” policy-making process.
The global markets had a moment of “joy and reprieve” during Monday, 20 January US session when Trump’s inauguration speech adopted a milder tone on trade tariffs targeted on US major trading partners, avoided any mention of the quantum amount on tariffs, and instead mentioned studies will be conducted on China, Canada, and Mexico to assess any form of unfair trade practices.
The US dollar tumbled across the board on the news that Trump would refrain from immediately implementing aggressive tariffs, and the US Dollar Index futures declined by 1.2% at the end of Monday’s US session to record its biggest daily slide since November 2023.
US dollar weakness has started to reverse in today’s Asia session
Fig 1: 5-day rolling performance of US dollar major pairs as of 21 Jan 2025 (Source: TradingView, click to enlarge chart)
On Tuesday, 21 January early Asian session, while signing off several executive orders in the Oval Office, President Trump rattled off to media reporters in an off-the-cuff press conference that he still planned to impose 25% trade tariffs on Mexico and Canada on 1 February.
The Lonnie reversed all its gains that materialized on Monday, US session to become the weakest major currency today against the US dollar.
Based on the five-day rolling performance basis, the USD/CAD has gained by 0.6% while the JPY is the weakest against the US dollar as the USD/JPY shed -1.6% at this time of the writing due to a potential Bank of Japan (BoJ) interest rate hike this Friday, 24 January (see Fig 1).
Bearish momentum remains intact for CAD/JPY
Fig 2: CAD/JPY medium-term trend as of 21 Jan 2025 (Source: TradingView, click to enlarge chart)
Since the start of the new year in 2025, the price actions of the CAD/JPY have failed to surpass its key 200-day moving average, retested, and staged a bearish reaction at the 50-day moving average acting as an intermediate resistance at 108.90 in today’s Asian session.
In addition, the daily MACD trend indicator has continued to inch downwards below its centreline today after a bearish divergence signal that was flashed out earlier on 14 November 2024.
These technical observations suggest the start of a potential medium-term (multi-week) downtrend phase for the CAD/JPY cross pair.
Watch the 111.45 key medium-term pivotal resistance and a breakdown with a daily close below 104.85 key intermediate support (also the lower boundary of the long-term secular ascending channel from the March 2020 low) exposes the medium-term supports of 101.80 and 97.55 next (see Fig 2).
However, a clearance above 111.45 invalidates the bearish scenario for a potential squeeze up toward the next medium-term resistances of 115.90 and 118.70.
