06.03.201814:53 Forex Analysis & Reviews: USD / CAD: Zugzwang for Canada

So, the US president still decided to omit the "steel curtain", despite protests and warnings from the representatives of many countries around the world. Donald Trump repeats Bush's senior path, applying the 232 section of the 1962 Law on Expansion of Trade. This decision, he took against the backdrop of the next disastrous negotiations on the NAFTA and on the eve of the March meeting of the Bank of Canada.

The combination of such factors had a strong pressure on the Canadian dollar and even oil, which holds in the region of $ 65, could not change the overall situation. Now, the pair's bulls are aimed at storming the nearest resistance level of 1.3120, which corresponds to the upper boundary of the Kumo cloud on the weekly chart. The achievement of this goal largely depends on the tomorrow's rhetoric of the Canadian regulator.

The seventh round of negotiations on the revision of the North American Free Trade Area ended again in vain. Despite the preliminary optimism, the parties not only did not renegotiate the deal but also did not come close to any compromise. Moreover, Trump's decision to raise tariffs on imports of steel and aluminum will hit primarily the Canadian economy, as Canada is the largest supplier of this raw material to the States.

In this context, the US president put forward a condition: either the Canadians accept the NAFTA terms and under the new transaction the duties for them will be abolished or the import of steel will be charged on general terms. A similar ultimatum, the US president voiced and Mexico, also stating that Mexicans need to "stop the flow of drugs to America."

In other words, Donald Trump added an element of blackmail to the negotiation process, which has been going on for almost a year already. After this, Canadian Prime Minister Justin Trudeau phoned the US president and "expressed concern" about the situation. However, how much this fact will affect the position of Trump is unknown. Most likely, political pressure on Canadians and Mexicans will not decrease, since Americans need a new agreement on free trade on their own terms. In general, the phrase "trade war" is already openly applied by the head of the White House. He managed to say that the States will easily win a similar war, although for him this is not an end in itself.

Thus, Canada was in a difficult situation. The exit from NAFTA will seriously damage the export of steel, while the unfair conditions of Americans within the framework of the updated deal will also lead to negative economic consequences. An original zugzwang, in which any further move leads to a deterioration of the position.

Does the Bank of Canada focus on the current situation? Certainly. Let me remind you that at the beginning of the year the Canadian dollar already fell under the wave of sales precisely because of the position of the Canadian regulator, which linked further prospects of monetary policy with the fate of the North American Free Trade Zone. And although in January the Central Bank raised the key rate, Stephen Poloz continues to take a cautious stance on this issue.

He has repeatedly stated that the growth of uncertainty in the field of foreign trade (namely, the disintegration of NAFTA) will weaken the Canadian economy. This factor is one of the main risks for the regulator, as it significantly reduces the investment attractiveness of the country. In one of the interviews, Poloz noted that companies are already postponing large investment decisions because of the vague prospects of the agreement. In the light of recent events, such fears will only increase, and the Bank of Canada is unlikely to ignore this fact.

It should be noted that during the period of certain optimism, when rumors of a breakthrough in trilateral talks (with simultaneous growth of oil quotations) appeared in the market, experts voiced the forecast of two rate hikes this year (in addition to the decision already made in January). Now, this scenario looks unlikely. After all, in addition to problems with NAFTA, there is another unpleasant nuance - slowing inflation. In January, this indicator grew by 1.7% after growing by 1.9% in the last month of last year. And although the consensus forecast was even lower, the fact remains that price pressure in the country is gradually decreasing.

However, this factor will not be decisive for the members of the Canadian regulator. The main intrigue of tomorrow's meeting is a general assessment of the events: Trump protectionism, its NAFTA ultimatum, the new tariff policy and the position of the head of the Canadian government. Most likely, the Bank of Canada will announce increased risks, after which the Canadian currency will continue its rapid decline.

Technically, the northern movement of USD / CAD is also a priority. On the daily chart, the pair's prices are traded in an uptrend, which is confirmed by signals from trend indicators. The pair is on the top line of the Bollinger Bands indicator, which in turn is in the extended channel. Ichimoku indicator Kinko Hyo generated a bullish "line parade" signal, in which all lines of the indicator are under the price chart. The middle line of the indicator Bollinger Bands is the support level and corresponds to the level of 1.2680. But the resistance level is 1.3120 - the upper limit of the cloud Kumo on the weekly chart.