US President Donald Trump confirmed that he would impose a 25% tariff on products from the two countries starting Tuesday, and the Canadian dollar and the Mexican peso immediately plunged. This is the latest in a series of trade statements from the US government, which have dealt a heavy blow to investors in the $7.5 trillion-a-day foreign exchange market.
On Monday, the Canadian dollar fell 0.6% to 1.4542 against the US dollar at one point, and the peso dropped 0.9% to 20.75, hitting its lowest level since the last Trump tariff deadline in early February, causing traders to sell off the currencies of Canada and Mexico. The Bloomberg Dollar Spot Index narrowed its earlier losses, down 0.5%, while the S&P 500 index suffered its worst sell-off of the year.
Shaun Osborne, chief foreign exchange strategist at Scotiabank, said: “The market had expected the US to make some concessions, either by backing down again or by imposing tariffs lower than 25%. The decline in US Treasury yields and the weakness in the US stock market indicate that the market is concerned that high tariffs on Canada and Mexico will soon have a negative impact on key US industrial sectors.”
According to an article on the White House’s Rapid Response account X, the White House also said on Monday that Trump has signed an order to raise tariffs on China from 10% to 20%. The offshore yuan fell 0.2% against the US dollar to a session low.
This year, the tariff risks of these two currencies have frequently erupted. The US government postponed the deadline for imposing tariffs on Canada and Mexico, which was originally set for early February, but the tax measures against China are still in effect.
Some market participants expect that the volatility on Tuesday will further intensify.
Monex foreign exchange trader Helen Given said: “Judging from the White House’s statement this afternoon, there are signs that the dollar will have a very favorable opening tomorrow. The next trading day will be very volatile, and the movements of the Canadian dollar and the Mexican peso this afternoon may just be the beginning.”
In recent weeks, foreign exchange market option traders have steadily built positions to hedge against losses in the Canadian dollar and the peso. Option bets indicate that traders have increased their holdings of these currencies to guard against a depreciation of the US dollar, although they are more optimistic about the risks of the Chinese yuan.
Options indicators show that expectations for the Mexican peso to fall are higher than they were when tariff concerns erupted in January. On Monday, the peso’s risk-reversal indicator exceeded 3% in favor of call options, a sign that traders are bracing for a downward trend.
Bond yields rose sharply on Monday after European leaders held talks over the weekend on how to support Ukraine, with investors bracing for governments to borrow heavily to fund defense.
German bonds led the decline, with the yield on the country’s 30-year bonds rising 12 basis points to a near one-year high of 2.82%. US Treasuries also fell, with the yield on 10-year bonds climbing 4 basis points to 4.25%, while defense stocks lifted European indexes and the euro rose.
In recent weeks, the prospect of Europe increasing its defense spending has become increasingly optimistic. The intense meeting between US President Donald Trump and Ukrainian President Volodymyr Zelensky on Friday has made this prospect even more urgent. Last weekend, European leaders gathered in London to discuss new military investment commitments and recommit to supporting Ukraine’s military investment.
Jens Peter Sørensen, chief analyst at Danske Bank, said: “There is no doubt that defense spending will increase significantly. The issuance of long-term bonds will rise, so investors expect a risk premium.”
Technical analysis:
Gold: The price continued its rebound on Monday, and our plugin clearly reminded of the buying opportunity after the breakthrough and pullback, as shown in the blue area in the chart. There’s no problem achieving a profit-to-loss ratio of more than 5 times. For the intraday trading, continue to use the low-buying in the demand zone and the momentum breakthrough buying as the main trading strategies. For detailed positions, please consult the plugin.
(15-minute Gold Chart)
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The Nasdaq index: The price has dropped by around 500 points from above 21,000, sweeping through two demand zones. However, in the short term, our main strategy is to buy at the low after the liquidity has been swept. Pay attention to whether a new demand zone emerges around 20,600 within the day for buying operations. For detailed positions, please consult the plugin.
(15-minute Nasdaq Index chart)
If you want to experience the same plugin as shown in the chart, please contact V: Hana-fgfg.
Crude oil: Affected by the news that OPEC may increase production, the price dropped back to around 68 overnight. In the short term, it is advisable to wait for a clear reversal of the trend before considering going long. The operation is inclined to wait and observe. For detailed positions, please consult the plugin.
(Crude Oil 15-Minute Chart)
If you want to experience the same plug-in as shown in the picture, please contact V: Hana-fgfg.
Today’s key financial data and events to focus on:
18:00 Eurozone unemployment rate for January
