EUR/USD struggles to extend Monday's gain as dollar draws haven bids
- EUR/USD feels the pull of gravity amid the escalating US-China tensions.
- President Trump threatens to block funding to WHO, while China accuses Trump of witchcraft.
- On the data front, the focus will be on the German Zew survey data for May.
EUR/USD eked out its biggest single-day percentage gain in 7.5-weeks on Monday to confirm a bullish breakout on the daily chart. So far, however, the follow-through has been weak.
The currency pair is trading at 1.0908, representing marginal losses on the day. The pair clocked a two-week high of 1.0927 on Monday.
Risk-off lifts dollar
Risk sentiment soured in Asia with President Trump asking the World Health Organization (WHO) to demonstrate independence from China in the next 30 days. Trump also threatened to cut off funding if the UN body does not commit to major substantive improvements within the next 30 days.
Meanwhile, the editor-in-chief of China's Global Times accused Trump of witchcraft for using Hydroxychloroquine for treating coronavirus. As a result, the futures on the S&P 500 turned red during the Asian trading hours, putting a haven bid under the US dollar. At press time, the futures are down more than 0.30%.
Looking ahead, a deeper drop in EUR/USD may be seen if the forward-looking German Zew survey indices disappoint market expectations. The data is scheduled for release at 09:00 GMT. Eurozone's Zew survey, also due at 09:00 GMT, could influence the pair.
Note that the US and China have recently come to loggerheads over the origin of the coronavirus pandemic and China's handling of the outbreak. Moreover, tensions on that front are beginning to translate into renewed trade frictions. So, even if EUR/USD gains altitude on the back of potential strong German data, the downside risk will persist.
Technical levels