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USD/CAD Slides Toward 1.3450 as Trump Targets Fed, Stagflation Fears Rise
Summary:
The U.S. Dollar tumbled Thursday as political pressure on the Federal Reserve and rising fears of stagflation sparked broad selling.
Trading
1.36500
ENTRY
1.34000
TGT
1.37800
SL
1.36073 +0.00031 +0.02%
0
Point
Flat
1.34000
TGT
CLOSING
1.36500
ENTRY
1.37800
SL
The U.S. Dollar came under heavy pressure on Thursday, reversing its modest recovery from the previous session as a complex blend of political tensions, macroeconomic risks, and monetary policy uncertainty sparked a sharp deterioration in investor sentiment. The catalyst for the renewed selloff was a fresh round of attacks from President Donald Trump targeting the independence of the Federal Reserve, a move that significantly undermined confidence in the credibility of U.S. monetary policy at a time when economic fragility is becoming more apparent.
According to reports from Washington insiders, Trump has recently escalated his rhetoric against Fed Chair Jerome Powell, allegedly using derogatory language and even entertaining the idea of replacing Powell before the end of his term. While the president has long been critical of the central bank's policy stance, the prospect of actively pursuing Powell’s dismissal represents a profound breach of the long-standing norms separating politics from monetary governance. Markets interpreted the remarks as an overt threat to institutional stability, prompting an immediate and sharp retreat in the dollar across the board.
This political drama unfolded just as Powell reiterated the Fed’s cautious tone regarding interest rates. In his latest public appearance, the Fed Chair suggested that the central bank remains in a strong position to manage inflation, even as the effects of U.S. tariffs continue to ripple through the economy. He offered no firm signal that a rate cut was imminent, instead emphasizing the Fed’s commitment to a data-driven approach.
Despite Powell's remarks, traders increasingly believe that policy easing is on the horizon. Expectations for a rate cut have surged in recent days. The CME FedWatch Tool shows that markets are now pricing in a 24% probability of a rate cut in July, up from just 14% a week ago. For September, the odds have soared to 90%, compared to 65% in the prior week. The spike in rate-cut bets is being driven not only by political pressure but also by fears that the administration’s escalating trade policy could push the U.S. economy into a period of stagflation—characterized by slowing growth and rising inflation.
Those fears were echoed by a recent report from JP Morgan, which warned that the imposition of unilateral tariffs could erode consumer and business confidence, slow investment, and feed into inflation through higher import costs. The bank raised its probability of a U.S. recession in the second half of 2025 to 40%, citing growing stagflationary pressures as the key risk factor.
Against this backdrop, the U.S. Dollar has lost favor even as global geopolitical tensions persist. The Dollar Index, which measures the greenback against a basket of major currencies, has broken below recent support levels. Demand has shifted toward currencies perceived to have more stable policy environments, despite broader market uncertainty.
One notable outperformer has been the Canadian Dollar. Despite a more than 16% collapse in crude oil prices—Canada’s primary export—the Loonie has gained nearly 0.5% against the U.S. Dollar this week. This divergence from traditional correlations suggests growing investor confidence in the relative strength of Canada’s macroeconomic fundamentals and its central bank’s policy discipline.
Technical Analysis
USD/CAD has been trading on the back foot, slipping toward critical support near the 1.3450 level. Technical signals point to further weakness ahead. The pair recently formed a head and shoulders reversal pattern, a classic bearish setup that signals an end to upward momentum. Additionally, the 50-day exponential moving average has moved above current price levels, a bearish crossover that indicates downside pressure is increasing.
Bearish engulfing candles have appeared on the daily chart, reinforcing the view that sentiment is turning against the greenback. Momentum indicators also show a shift in favor of sellers, and the price is now hovering near a potential break of market structure. A fair value gap has emerged just above the current level, suggesting that price may be seeking equilibrium at lower levels.
A descending trendline has consistently rejected upside attempts, further confirming that bulls have lost control. If the pair decisively breaks below 1.3450, technical momentum could drive it toward the 1.3380–1.3400 range. Conversely, any bounce is likely to face stiff resistance around 1.3560, the neckline of the head and shoulders pattern and a former support zone now acting as a ceiling.
TRADE RECOMMENDATION
SELL USDCAD
ENTRY PRICE: 1.3650
STOP LOSS: 1.3780
TAKE PROFIT: 1.3400
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Warren Takunda, a seasoned finance leader specializing in the Middle East, is a trusted senior analyst with a proven track record. As head of the finance team, he excels in financial planning, analysis, and reporting. Warren's expertise in financial modeling and investment analysis delivers valuable insights to clients.
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