The framework agreement on Greenland has calmed the financial markets. The US will not impose additional tariffs on Europe. As a result, the EUR/USD pair has retreated. Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- The US and Europe will not start a trade war.
- The TACO trade has calmed the financial markets.
- The Supreme Court upholds the Federal Reserve’s independence.
- Short trades can be opened as long as EUR/USD quotes remain below 1.1715.
Weekly US Dollar Fundamental Forecast
The markets moved on from the chaos and panic caused by the TACO trade in just a couple of days. The S&P 500 index recovered, Treasury bond yields fell, and the US dollar strengthened after Donald Trump said there was a framework agreement with NATO on Greenland. The US leader is not going to impose additional tariffs on selected European countries. Trump has backed down again, and EUR/USD bears have welcomed this move.
Market Reaction to Trump’s Remarks on Greenland
Source: Bloomberg.
What or who made Donald Trump take a step back? The skillful diplomacy of NATO Secretary General Mark Rutte? However, he is not an official representative of Denmark, which owns Greenland. He is not authorized to conclude buy-and-sell agreements on the island. Was it the European Union’s suspension of the previously reached agreement with the US on 15% tariffs? Or were there fears of a precipitous collapse in stock indices? I believe the answer lies in a set of factors.
In fact, the US does not need Greenland, a cold island covered entirely in ice, which Donald Trump mistakenly referred to as Iceland several times in his speech in Davos. However, the US is interested in deepening cooperation with NATO on Arctic security issues. In 2025, the US president quickly backed down from his threats when China hit back. Europe has now done the same.
A large-scale fall in the S&P 500 index would be a serious blow to the US economy. About half of all consumer spending is linked to the 10% of American households with the highest incomes. About 31% of all wealthy assets are in stocks, and their share has doubled over the past 30 years.
The US dollar was supported not only by the TACO factor, but also by the Supreme Court’s skepticism about Donald Trump’s authority to fire Lisa Cook. If this happens, the precedent will allow future presidents to reshuffle the FOMC whenever they want. Most likely, the governor will remain in office for several months until the lower courts consider her mortgage case.
There will be no more doves on the Committee. This means that the pause in the Fed’s monetary policy easing cycle risks dragging on until June. The futures market still expects rate cuts in early summer and two acts of monetary expansion in 2026.
Market Expectations for Fed Funds Rate
Source: Bloomberg.
It seems that the “Trump Always Chickens Out” strategy and the Fed preserving its independence are forcing the Forex market turn to monetary policy again. The Fed’s plan to sit back and see how events unfold, at least until June, made the US dollar stronger.
Weekly EURUSD Trading Plan
The greenback is likely to spark renewed investor demand. Therefore, while the EUR/USD pair is trading below the resistance level of 1.1715, short positions can be opened.
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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