POLITICAL RISK: Trump-Trudeau Call Ended On A "Somewhat" Friendly Manner

• Treasury futures see heavy round of buying last couple minutes, over 50,000 TYH5 from 109-02 to -05.5, pushing total volume to 2.2M for the contract, following the latest tariff headlines where Pres Trump said he "had good talk with Trudeau".
• Less positive, Trump follows with "E’RE NOT TREATED WELL BY CANADA WE DON’T NEED CANADIAN CARS, LUMBER, AGRICULTURE WOULDN’T MIND MAKING OUR CARS IN THE UNITED STATES" Rtrs.
• "HAVEN’T AGREED WITH MEXICO ON TARIFFS YET" Bbg after earlier headlines noted delay of tariffs to early May.
• The TYH5 contract trades 109-05 last, off early session high of 109-15.5, through initial technical resistance of 109-10.5 (50-day EMA), next level 109-31 (High Dec 18).

• RES 4: 1.0533 High Jan 27 and a key resistance   
• RES 3: 1.0450 50-day EMA
• RES 2: 1.0350 Low Jan 31 and a gap high on the daily chart  
• RES 1: 1.0335 High Feb 3
• PRICE: 1.0304 @ 16:44 GMT Feb 3 
• SUP 1: 1.0138 1.764 proj of the Sep 25 - Oct 23 - Nov 5 price swing
• SUP 2: 1.0031 2.00 proj of the Sep 25 - Oct 23 - Nov 5 price swing
• SUP 3: 1.0000 Psychological round number  
• SUP 4: 0.9947 76.4% of the Sep 28 ‘22 - Jul 18’23 bull leg 

EURUSD is trading in a volatile manner. Monday’s gap lower and fresh cycle low, highlights a resumption of the downtrend. Moving average studies are in a bear-mode position and attention is on 1.0138, the 1.764 projection of the Sep 25 - Oct 23 - Nov 5 price swing. Clearance of this level would open 1.0031, the 2.00 projection. Initial resistance is at 1.0335, Monday’s intraday high and a gap low on the daily chart.     

• i) Any intermeeting cut would likely be larger than 25bp otherwise it’s hard to justify, but such a move when coming as a complete surprise would risk a further slide in the Canadian dollar as investors see the BoC panicking. USDCAD has pulled back to 1.4600 (~100 pips of which came following the Mexico news) after almost touching 1.48 overnight for highs since 2003.
• ii) The Bank has in its words cut a “substantial” 200bp since June which have started to support the economy. It’s taken the overnight rate target to 3% for within the 2.25-3.25% estimated range for neutral (a rate that has a chance of being revised higher again in the April MPR when it’s set for its annual estimation).
• iii) Last week’s 25bp cut was painted as a risk management approach in the face of tariff uncertainty whilst Governor Macklem also pointed to a stepping up of outreach activities with businesses and households to see how they were responding to any potential tariffs in real time (MNI BoC Review from the Wed decision here:).
• iv) Canadian government retaliation keeps an inflation angle at play, pushing for 25% tariffs on C$155bn of US goods (C$30bn effective Tue before the remaining C$125bn in three weeks to allow businesses time to prepare).