EU readies response after Trump's Greenland threats as markets wobble

[Ben Graham]

The euro rose and the US.dollar fell after Donald Trump made clear that the Greenland issue remains unresolved.

"US President Donald Trump reached a red line with his threat to hit NATO allies with additional tariffs for opposing his bid to annex Greenland," Germany's finance chief said. "We are constantly experiencing new provocations, we are constantly experiencing new antagonism, which President Trump is seeking, and here we Europeans must make it clear that the limit has been reached," German Finance Minister Lars Klingbeil told reporters in Berlin on Monday.

Such remarks capped a multi-day diplomatic crisis triggered by the US leader's unexpected interest in buying the Danish territory. Observers are watching the escalation with bated breath, mindful that the stakes go beyond a single island and touch on the future of transatlantic relations.

Europe reacted quickly and decisively. In addition to harsh comments from Germany's finance minister, leaders in France and the United Kingdom voiced deep concern about actions by the U. administration. The EU is convening an emergency Council meeting in Brussels to discuss possible responses. Experts say Europe is unlikely to let such blatant pressure go unanswered and will enter tough negotiations with Washington.

Greenland, which is part of the Kingdom of Denmark, asserted its full autonomy in decision?making and rejected any attempt at annexation. Residents, traditionally skeptical of US policy, have staged mass protests against the president's actions.

"There is a legally established European toolbox that can respond to economic blackmail with very sensitive measures, and we should now examine the use of these measures," Klingbeil added.

Over the weekend, Mr. Trump announced a 10% tariff, effective February 1, on goods from eight European countries that joined together to support Greenland against US seizure threats, with the duty rising to 25% in June if no agreement is reached on a "purchase of Greenland." Mr. Trump made the threat after those countries said they would hold symbolic NATO military exercises on the semi?autonomous Danish territory.

The EU is now discussing the imposition of tariffs on US goods worth €93 billion if Mr. Trump follows through on his threat. The measures have been approved in principle in Brussels and could be implemented quickly if required. The list of products potentially subject to duties includes US industrial goods such as Boeing aircraft, American?made cars, and bourbon.

As noted above, the currency market saw heavy dollar selling and a rally in risk assets.

A technical outlook for EUR/USD suggests that buyers should consider reclaiming 1.1675. Only that would allow a test of 1.1700. From there, a move to 1.1720 is possible, although advancing beyond that without support from major players will be difficult. The extended target is the high at 1.1742. On a decline, I expect meaningful buying interest only near 1.1650. If no buyers appear there, it would be prudent to wait for a new low at 1.1615 or to open long positions from 1.1580.

As for GBP/USD, buyers of the pound sterling need to capture the nearest resistance at 1.3440. Only that will allow a move toward 1.3460, above which a breakout would be challenging. The extended target is the area around 1.3489. If the pair falls, bears will try to seize control at 1.3420. If they succeed, a break of that range would deal a serious blow to bullish positions and could push GBP/USD down to 1.3400, with scope to extend to 1.3360.

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