EUR/USD firms as traders revisit ‘Sell America’ playbook

• USD slips after Trump threatens Greenland tariffs
• EUR/USD bounces following test of 200‑day moving average
• Market tone may hinge on whether the Davos twist arrives

Summary

The euro is benefitting from another Washington-driven volatility burst, with Trump’s latest tariff threat against eight European nations sparking a pullback in the U.S. dollar that feels distinctly similar to the post Liberation Day pattern. EUR/USD has bounced from the 200-day moving average as traders reassess whether this episode will again fade should Trump eventually back down. Until that point arrives, European currencies have room to stay supported.

‘Sell America’ 2.0?

Are we due another mini version of the ‘Sell America’ trade in the wake of Donald Trump’s threat to impose tariffs on eight European nations unless they agree to sell Greenland to the United States? Based on the early price action in Asia, the answer looks to be yes, with many similar moves seen after Trump’s Liberation Day reciprocal tariff announcement in April last year. After gaining initially, the U.S. dollar is reversing course. US stock futures are also underperforming relative to Asia, with declines in the vicinity of 0.6 to 1.1% recorded.

Trump announced on Truth Social that the United States will hit Denmark, Norway, Sweden, France, Germany, the United Kingdom, the Netherlands and Finland with a 10% tariff from February 1, rising to 25% from June 1, and that these levies will stay in place until what he calls the complete and total purchase of Greenland is agreed. It is a threat that sounds dramatic but also fits neatly into the broader Donroe-style mindset that casts Greenland as something the United States believes it should control.

Despite the abrupt move, the threat aligns with the usual TACO playbook, landing at the start of a long weekend with tariff levies that do not start for weeks, giving Trump ample time to craft an apparent deal before US markets reopen on Tuesday. That timing alone hints we may see a reversal in these early market trends unless he fails to deliver the familiar backflip on the sidelines of the World Economic Forum in Davos.

Given how similar this feels to the post Liberation Day episode, where the US dollar stayed offered until he eventually backed down, it leaves open the possibility that European currencies extend their strength until if and when the same point is reached this time around.

EUR/USD Bounces from 200DMA

Source: TradingView

EUR/USD initially traded heavy on the Asia open but has since bounced strongly, attracting buying support beneath the key 200-day moving average. The pair is now testing former support at 1.1620, providing an initial range for traders to focus on.

Should the rebound extend beyond 1.1620, watch the price action at the confluence of the December downtrend and 50-day moving average, located today around 1.1650. If EUR/USD were to clear those levels, it would signal a potential trend change, putting a test of resistance at 1.1700 and 1.1800 in play. That said, unless a clear escalation in tensions occurs in the coming days, a return to the latter level seems unlikely near term. 

Should sellers above 1.1620 continue to cap gains, watch for a possible retracement back towards the 200-day moving average, with 1.1550 the next downside level of note should the downtrend resume.

RSI (14) and MACD are generating bearish signals, sitting beneath 50 and in negative territory respectively. However, in headline-driven environments such as these, the signal may not be overly reliable when it comes to directional risks. With RSI (14) also breaking the downtrend it has been in over the past month, there are also early signs emerging that downside strength may be past its peak.