The US dollar plunged after reports that the European Union is prepared to block a trade agreement with the United States in response to President Donald Trump's threat to impose tariffs on countries that supported Greenland amid US seizure threats.

Statements from senior EU officials that they may halt support for the trade pact came as a bolt from the blue for financial markets. Investors rushed to shed dollar assets amid fears of a severe hit to the US economy. The dollar index tumbled while the euro rallied. Such a move by the EU would be an unprecedented show of unity and resolve against pressure from Washington. The long?term consequences of this confrontation are hard to predict. A breakdown of the trade deal could harm both sides, prompting higher tariffs, lower trade volumes, and slower economic growth.

Manfred Weber, president of the European People's Party, the largest political group in the European Parliament, said last Saturday that striking a deal with the United States is no longer possible. Weber wrote that, while the EU supports a trade agreement with the U.S., its implementation at this stage is impossible given Donald Trump's threats over Greenland. He added that the EU's agreement to reduce duties on US goods should be suspended.

It is worth noting that the trade deal between the EU and the US, agreed last summer by European Commission President Ursula von der Leyen and Mr. Trump, is already in force but still requires parliamentary approval. The agreement set a 15% US tariff on most EU goods in exchange for an EU pledge to remove tariffs on US industrial goods and certain agricultural products. Von der Leyen, who led the talks for the EU, struck the deal in an effort to avoid a full?scale trade war with Mr. Trump.

Last Saturday, Mr. Trump announced a 10% tariff, effective February 1, on goods from European countries that united to support Greenland in the face of U.S. threats to seize the semi?autonomous Danish territory. He said tariffs would rise to 25% if a deal for a "full and absolute" purchase of Greenland by the United States is not reached.

The announcement drew swift criticism from European leaders, who are now weighing their response. Von der Leyen said the tariffs would undermine transatlantic relations and risk a dangerous downward spiral, and French President Emmanuel Macron called Mr. Trump's threats unacceptable.

It also emerged that the EU is preparing measures that could impose tariffs on US goods worth €93 billion if President Trump implements his threat to impose a 10% duty on European countries from February 1.

The EU is considering additional countermeasures beyond tariffs, but will first seek a diplomatic solution.

A technical outlook for EUR/USD suggests that buyers should consider reclaiming the 1.1645 level. Only that would allow them to target a test of 1.1675. From there, a climb to 1.1700 is possible, though advancing beyond that without support from major players would be difficult. The extended target is the high at 1.1720. In the event of a decline, meaningful buying interest is likely only around 1.1610. If buyers do not appear there, it would be prudent to wait for a new low at 1.1580 or to open long positions from 1.1550.

As for GBP/USD, buyers of the pound sterling need to capture the nearest resistance at 1.3410. Only that will allow them to target 1.3440, above which a breakout would be challenging. The extended target is the area around 1.3460. If the pair falls, bears will try to seize control at 1.3380. If they succeed, a break of that range would deal a serious blow to bullish positions and could push GBP/USD down to 1.3360 with scope to extend to 1.3340.