There will be an important impact on Tuesday from the impact of month-end trading, especially as it is also the end of the second quarter and volatility levels are liable to spike higher in New York. There will be further underlying fears over reserve diversification away from the dollar which will also tend to undermine the US currency. Month-end demand will tend to trigger further near-term Euro gains, potentially to at least 1.4180 against the dollar before a sharp corrective retreat on Wednesday.

The Euro pushed back to the 1.41 region during the day in subdued trading conditions. Risk appetite gradually improved during the day which helped lessened dollar demand and made it easier for the Euro to push higher. There was also a recovery in the Euro-zone business and consumer confidence indicators which helped underpin confidence in the Euro-zone recovery prospects.

There were no major US data releases during the day to help guide markets. The mid-west manufacturing index did, however, weaken to a 16-year low as there were further substantial stresses in the auto sector. The Chicago PMI index and consumer confidence data will be watched closely on Tuesday for further evidence on economic trends. The dollar is liable to drift weaker if there is a sharp recovery in these two indices as risk appetite would improve.

With month-end trading also an important factor on Tuesday, there will be the risk of volatile trading, especially during the US session. The overall risks suggest that the Euro could gain support during the day on position adjustment and it nudged above the 1.41 level in early Europe on Tuesday as the dollar remained on the defensive.