In the battle for Greenland, all means are acceptable, including tariffs and a weaponization of capital. Europeans own $10 trillion in US assets. Why not sell them? Let's discuss this topic and make a trading plan for the EUR/USD pair.
The article covers the following subjects:
Major Takeaways
- The euro is rising on hopes for new stimulus measures.
- The "Sell America" trade hits the dollar.
- Tariffs represent a tax on US consumers.
- Long positions on the EUR/USD pair can be increased if the price breaks through 1.168.
Weekly Euro Fundamental Forecast
US tariffs against the EU over the quest to purchase Greenland came out of the blue. However, markets responded much more calmly than they did on Liberation Day. Have investors grown accustomed to Donald Trump? Are they counting on the TACO trade, or are they unable to comprehend the full extent of the disaster looming over the West and the potential collapse of NATO? Whatever the outcome of the confrontation, it is clear that the former alliance between the US and Europe will not be the same again.
The "Sell America" trade, which got dusted off in April, has returned and pushed EUR/USD quotes higher. Meanwhile, there are plenty of other reasons why the euro has strengthened. Europe is the US's biggest customer in the military sphere. The conflict could lead to fiscal stimulus and increased defense spending from domestic sources. Investors have already seen something similar after Friedrich Merz came to power in Germany.
On paper, Europe looks like the loser in the trade war, even before it begins, because more goods are supplied to the US from Europe than vice versa. However, Deutsche Bank is talking about financial weapons. According to Societe Generale, the US's net international deficit has grown to a massive size, posing a significant threat to the dollar. However, this would only be the case if the owners of US assets were willing to bear financial losses.
US Assets Held Within the EU
Source: Bloomberg.
According to the US Treasury, Europeans own about $10 trillion in US assets, mainly stocks, although the European share of foreign Treasury holdings is about 40%. The amount of money is enormous, but it is difficult to use it as a weapon of retaliation. It is held in private funds, and holders should be prepared for losses due to the desire to retaliate against the United States for tariffs.
Pressure on the US dollar is exerted by studies confirming that import duties are paid not by non-residents but by Americans. According to the Kiel Institute for the World Economy, tariffs are a tax on consumers at home, not a fee for access to the big, beautiful store called the United States. 96% of the fees are paid by US consumers, and only 4% by foreign suppliers.
History is repeating itself. Markets are acting as they did in April, but to a lesser extent. Although there are other parallels. During the US-China trade war during Donald Trump's first term, many speculated that Beijing would retaliate by selling off US assets. At that time, the back-and-forth hits made the US dollar stronger and the yuan weaker.
Weekly EURUSD Trading Plan
The "Sell America" trade, hopes for new fiscal stimulus, and Europe's export reorientation are driving the EUR/USD pair higher. Long positions formed above 1.1615 can be maintained. If the price settles above the resistance level of 1.168, long positions can be increased.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of EURUSD in real time mode
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