Europe Forex Market Update

The US dollar strengthened slightly overnight, trading in a narrow 1.2784-1.2813 range against EUR, though, and in an equally tight 116.28-116.56 range against the JPY. In the news, Iranian news agency Fars reports that Iran's proposal on nuclear issues called for further discussion, but rejected calls for it to suspend its nuclear activities.

The UN deadline for compliance is August 31. Oil prices edged slightly lower in Asian trading hours, not helping stocks where profit taking took the Nikkei 0.3% lower.

Federal Reserve Bank of Chicago President Michael Moskow said on Tuesday that the Fed may need to resume raising rates with inflation staying above his "comfort zone" and that "some additional firming may yet be necessary to bring inflation back into the comfort zone with a reasonable period".

Atlanta Reserve Bank President Jack Gynn, however, expects inflation to decline in coming months and said on Tuesday that monetary policy was "properly calibrated".

We believe that the US economy is indeed slowing sufficiently to cap inflationary pressures and hence we stick with our view that the Fed tightening cycle has most likely ended, making us buyers on dips in EURUSD.

Housing market data will be a key influential factor in coming months, and existing home sales for July are due later today at 1400 GMT. The market expects a median 6.55 mln units, down from 6.52 mln units in June, and any disappointment will likely help the USD to weaken.