I always presumed it took place in a Mediterranean country...Spain or Greece or Italy...

She's NOT Danish! Just because HCA was Danish doesn't mean she is! Her place doesn't even look remotely Scandinavian and Eric's castle is based off one in Switzerland! Although she cant be Swiss either since it's a land locked country. The setting is ambiguously European.

could portuguese be red haired? but no other character was...so not really sure. The kingdom looked as if in a warm seaside place

Definitely ^^ I've always thought of her as Danish character.

For me, I associate her very much with the Portuguese. I think it’s because they invented what our alphabet language is based on due to their doing trade all over the world and being the first to globalize everyone through trade and communication. Additionally, Eric is a sailor and the Portuguese were known for being the best sailors and boat makers. As jeangreyforever pointed out, there are also many Mediterranean (as well as Caribbean) influences in the environment and creatures of the film as well.