• USD/CAD tumbles below 1.4200 as the US Dollar takes a hit on escalating US recession fears.
• JP Morgan expects the US economy to contract by 0.3% this year.
• Canadian PM Carney warned that the US recession could have a negative impact on the domestic economy.

The USD/CAD pair fall sharply below the key level of 1.4200 in Tuesday’s European session. The Loonie pair weakens as the US Dollar (USD) faces selling pressure amid fears that the United States (US) economy could enter a recession due to the imposition of harsh-than-expected tariffs by President Donald Trump.

Trump announced reciprocal tariffs on Wednesday in addition to a 10% universal baseline levy, whose burden is expected to be borne by US importers. Theoretically, importers will pass on the impact of higher prices to consumers. Such a scenario will be inflationary and slow down the domestic economic growth by diminishing the purchasing power of households.

Fears of potential US economic shocks have led market experts to revise their growth forecasts. Investment banking firm JP Morgan has forecasted that the US economy could end the year with a 0.3% decline in the Gross Domestic Product (GDP) growth.

Meanwhile, the Canadian Dollar (CAD) trades higher against the US Dollar, but its outlook remains uncertain as the probability of the Canadian economy to enter a recession has swelled. Canadian Prime Minister (PM) Mark Carney said on Monday that President Donald Trump’s tariffs have increased the possibility of a US recession, and that will have a major “negative effect on the Canadian economy”.

USD/CAD recovers strongly after a “fake” breakdown of the 1.4150 support plotted from the February 14 low. The near-term outlook of the Loonie pair is still bearish as the 50-day Exponential Moving Average (EMA) is acting as a major barricade around 1.4300.

The 14-day Relative Strength Index (RSI) holds the key level of 40.00. A fresh bearish momentum would trigger if the RSI fails to hold the 40.00 level.

The pair would strengthen if it breaks above the April 3 high of 1.4320. Such a scenario would send the major higher to near the April 1 high of 1.4415 and the March 14 high of 1.4447.

On the flip side, a fresh downside would appear if the pair breaks below the December 6 low of 1.4020. The scenario would expose the pair to the psychological support of 1.4000, followed by the November 25 low of 1.3927.
 

USD/CAD daily chart

(Click on image to enlarge)

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