Insights 
VT 
On Friday, President Trump abruptly ended trade talks with Canada due to Canada’s plan to implement a Digital Services Tax targeting American technology firms. Trump condemned the tax as a direct attack on the U.S., announcing the termination of discussions and potential tariffs on Canadian goods within a week. This came after both countries had initiated a 30-day negotiation window earlier in the month.
The market reacted with the Canadian dollar falling sharply and risk sentiment weakening. Analysts viewed this move as Trump’s strategy to pressure Canada into abandoning the tax for relief from U.S. tariffs. Despite stalled talks, there was a potential for both countries to reach a deal considering their economic interests.
Canada Responds to US Pressure
Over the weekend, Canada withdrew its Digital Services Tax to advance broader trade talks with the U.S. The USDCAD price had already retraced some gains on Friday, moving below the 100 and 200-hour moving averages, indicating a technical shift. During the Asia-Pacific session, attempts to rally were met with resistance. A further decline was observed following Canada’s announcement of the tax rescission. While a corrective move occurred in the European session, it remained under the 100-hour moving average, suggesting bearish pressure. If the price declines below 1.36337, further selling could increase the bearish outlook.
The earlier portion of the article outlines a sharp and unexpected decision by the U.S. government to halt trade negotiations. This decision stemmed from Canada’s prior announcement of a Digital Services Tax, which was set to be applied mainly to American digital platforms. The U.S. President described the measure as punitive and announced a potential trade retaliation. This fuelled volatility across markets on Friday, pushing the Canadian dollar lower, while demand for safer assets picked up.
Financial institutions inferred that the public announcement was intended more as a pressure tactic than a final position. Nevertheless, it unsettled markets in the near term. Over the weekend, Canada responded by stepping back from the proposed tax, possibly seeking to preserve broader commercial ties. Early trading activity on Monday reflected this pivot—with the USDCAD failing to find footing above resistance levels set during earlier sessions.
Market Reactions and Technical Analysis
We’ve since seen an attempt by markets to reconcile last week’s rapid shifts with new information. Monday’s Asia session brought an initial rally attempt, but sellers stepped in, reflecting general caution. Into the European hours, price behaviour showed that rallies are short-lived and met with profit-taking. With the pair unable to overcome the 100-hour moving average, downward pressure now seems to be building gradually again.
From a purely technical view, a sustained move below 1.36337 would likely suggest that sellers are growing more confident and that any short-covering rebounds could be limited. That level has been behaving as a rough floor in recent sessions. Should that break, downside extension becomes more probable, with likely momentum led by automated strategies.
The decision to roll back the tax provides a temporary calming effect—policy tension has eased—but technically the bias remains tilted downward for now. The price’s inability to reclaim Friday’s highs signals that the broader market is not yet convinced conditions have stabilised. We’ve seen a lot of repositioning at the start of the week, particularly in short-term rates markets and the options space, reflecting a desire to stay nimble rather than commit deeply to directional trades.
Coming sessions may bring further repositioning if we move beyond that 1.36337 area. Watch rates implied by one-week volatility measures—any spike there would be an early sign that certain desks are building hedges. Our read is that intermarket signals are still unsupportive of a large trend reversal. Cross-asset indicators, such as movements in Treasuries and crude, are also not validating a sustained Canadian dollar strength yet.
There’s also a broader story here about policy reaction risk. Even temporary headline-driven moves can be exaggerated when concentrated around thin liquidity windows—like we saw on Friday. As such, any rallies into resistance should not be trusted by default. We would expect many participants to keep size limited and focus on short-duration expressions for now.
