On Tuesday (January 20), in early US trading, despite a rebound in US stock indices from their morning lows, risk appetite remained generally weak—though this might not be apparent if you only look at commodity currencies. In fact, the Australian dollar, New Zealand dollar, and Canadian dollar all rose against the US dollar, something that typically doesn't happen in a risk-averse environment. This is reminiscent of last year, when news of tariff reciprocities triggered a so-called "sell-off in America." This time, Trump seems undeterred, reaffirming his desire to acquire Greenland. The truly unthinkable scenario is Trump using military force to seize control of Greenland. While he dodged the question when pressed by reporters, the very idea of "annexation" is enough to unsettle markets. Even without actual military intervention, the renewed escalation of tariff threats is equally disruptive. Last weekend, Washington announced new tariffs on several European countries, prompting a sell-off in stocks and the US dollar.



Meanwhile, the Supreme Court again did not rule on the legality of the tariffs. This decision may now have to wait until February 20th, giving the market ample time to continue putting pressure on the dollar if Trump does not back down.

Meanwhile, the Canadian dollar reacted positively to news that Canadian Prime Minister Mark Carney is seeking new global trading partners. He hopes to strengthen cooperation with China and has already signed several smaller trade agreements. However, Canada's geographical location and its still significant economic dependence on the United States mean that the extent to which it can break free from U.S. influence is limited.

Risk appetite declined, and the US dollar fell.

The US escalated pressure over the weekend, threatening to raise tariffs on eight European countries from 10% to 25%. This aligns perfectly with the government's "maximum pressure" strategy, but it also raises unsettling questions for investors. Is Europe nearing the end of its relative patience with Washington? Will the EU's counter-coercion tools be activated soon? The possibility of trade retaliation, coupled with concerns about internal rifts within NATO, seems poised to dominate this week's policy agenda, relegating discussions about Ukraine to a secondary position. Investors are well aware of the so-called "TACO trade"—past tensions have often turned into political maneuvering. This familiarity may explain why the market is reluctant to chase news too aggressively. However, complacency is dangerous. After a period of relative calm, volatility in the foreign exchange market has quietly returned, and developments warrant close monitoring.

Key levels to watch for USD/CAD


(USD/CAD daily chart source: EasyForex)

USD/CAD has retreated from the significant resistance zone between 1.3900 and 1.3950. This area previously acted as support, and the drop from here suggests that the trend of lower lows and lower highs since the peak in February of last year remains intact. In this context, the path of least resistance for the pair remains downward, and the bears are still in control – especially if the support level of 1.3800 is broken. If 1.3800 is decisively broken, then 1.3700 will be the next target for the bears, followed by the liquidity zone below the December low of 1.3642.

On the upside, if the 1.3900-1.3950 resistance zone is broken, then 1.4000 may be a brief pause point, after which the upward trend may continue.