USD cannot build on Monday's gains

The EUR/USD pair edged again up on Tuesday. The pair crept up from the 1.42 to the 1.4270 area.

It is clear that the dollar??�s comeback seen on Monday, which pushed EUR/USD down from fresh record highs at the 1.4340 zone to the 1.4160 zone at one point, had no stamina.

The Richmond Fed survey was dramatically poor in all its components, with a headline falling from 22 to -5. The dollar took another setback, with EUR/USD in the minutes after this trading at the 1.4270 area.

Yesterday??�s dollar pullback seems to encourage a buy-euro-on-dip scenario. We weren??�t convinced by Monday??�s dollar comeback, as we don??�t have a good feeling about the US/USD outlook. Indeed, the Fed will cut, while the ECB keeps talking hawkish and the EMU policy makers are not trying to cap the euro ascent.

Overnight, the ABC consumer confidence dropped from -13 to -17. The impact on dollar trading was limited, but it is of no help either for the US currency as it suggests more weakness from the consumer side in the US.

Today, the calendar contains the US mortgage applications and the existing home sales. The market more or less got used to poor US housing data, but once again they won??�t be of any help for the US currency. We hold on to a buy EUR/USD on dips approach.

The yen basically held a sideways trading range against the USD on Tuesday. The pair dipped to lows at the 114.20 zone, but any additional yen gains were blocked and at the end of the day USD/JPY was even marginally higher in a daily perspective. A decent stock market performance in core markets probably is the best explanation for this intraday yen weakness.

This morning, the Japanese trade surplus topped expectations but was no market mover. The USD/CNY for the first time since its floating??� dropped below the 7.50 mark and this might have given the yen some support as well.

USD/JPY has been moving in a broad sideways range between 117.95 and 111.60. We would advise to play those ranges as a break should be difficult without a big change of sentiment on the financial markets. Stock markets would have to crumble to push USD/JPY below 111.60, while the USD should see some economic improvement before being able to reach above 118. Short-term we slightly prefer a sell on up-ticks approach in USD/JPY for a test of the lower barriers of the range.

After some ???wild??� rumours on potential credit losses recently, the Merrill Lynch data in case of a big surprise could have some impact on global investor risk appetite and thus on the yen.

Elsewhere in the region, the Aussi dollar this morning revisited the 0.90 area against the USD on higher than expected (core) inflation data, fuelling speculation on an additional rate hike.

EUR/GBP dipped ahead of the day??�s data and events, from the 0.6975 area to the 0.6950 zone.

The UK CBI quarterly industrial trends survey disappointed with its orders book balance falling from +6 to -6. This gave a rise in EUR/GBP from the 0.6950 zone to the 0.6965 area, but things cooled down fast and it couldn??�t reverse the day??�s gains of the sterling. The UK data have been solid enough for us to feel comfortable with our call for buying sterling on dips. We kept this even during the dark times of late for the pound.

BoE (swing) member Kate Barker talked about the influence of the world economy on UK monetary policy and used this to launch some interesting headlines. She highlighted the risk to the downside of growth had grown because of the financial turmoil but went on to say she hadn??�t seen an impact yet. All in al it seemed balanced enough and didn??�t impact EUR/GBP.

Today, UK calendar is empty. In the Euro zone we watch out for the preliminary PMI data. In a daily perspective, deterioration in global risk appetite (if it were to be extended today) is not the most favourable context for sterling. However, for now we hold on to our standing view that sterling has been punished enough recently and that the 0.70/0.7030 area should provide strong support for the sterling for now.