Dollar Stability Pressures Commodities

Bullish commodities ran into resistance Tuesday, as the US dollar stabilized against a basket of world peers.

The US dollar index, a weighted average of the greenback against a basket of six currencies, reached a session high of 97.78. That would have been the highest settlement in nearly two weeks.

Gold prices briefly traded below $1,260.00 a troy ounce before regaining momentum. Prices were still struggling for gains through the North American session.

Precious metals are seen as a good hedge for when the dollar is falling, but don’t always make great investments when the greenback rises. This was clearly evident after the US presidential election, when the dollar spiked to nearly 13-year highs.

Crude prices also struggled to hold gains Tuesday, as traders continued to speculate about the ability of the Organization of the Petroleum Exporting Countries (OPEC) to rebalance the market.

Meanwhile, the euro fell out of favour with traders after several batches of softer than expected data weighed on optimism. In particular, Germany’s consumer price index fell 0.2% in May, the Federal Statistical Office reported Tuesday. In annualized terms, CPI weakened to 1.5% from 2%.

Germany’s Harmonized Index of Consumer Prices (HICP), which is calculated using a methodology consistent throughout the European Union, fell 0.2% in May and was up 1.4% annually.

Meanwhile, Eurozone industrial confidence strengthened less than expected in May. Separate gauges of service sentiment and economic sentiment declined unexpectedly.

EUR/JPY

Weak economic data and a potential setback in Greece’s bailout situation weighed on the euro Tuesday. The EUR/JPY exchange rate reached a session low of 123.10 before rebounding back toward the 124.00 handle. The pair faces immediate support at the daily low, and a breach of that level would expose the 18 May low of 122.52. Below that, we approach the 100-day simple moving average (SMA) around the 121.00 handle. On the opposite side of the spectrum, immediate resistance is located at the 20-day SMA near 124.25, followed by the 29 May high of 124.69.

Gold

Gold prices bottomed out in the mid-$1,259.00 region before rebounding later on in the session. The yellow metal succeeded in breaching the key resistance at $1,264.00 during the previous session, but has since struggled to regain ground. If bullion can regain that level, it could target the downtrend line that began from last summer, which suggests a move above $1,280.00. A bearish turn could lead prices below the $1,255.00 handle in relatively short order. Traders should therefore monitor the performance of the US dollar ahead of the 13-14 Federal Open Market Committee (FOMC) policy meeting, which is widely expected to produce rate hike.

WTI Oil

After back-to-back gains, crude prices ran into resistance Tuesday as traders scaled back their bullish outlook on OPEC. US crude futures traded above $50.00 a barrel before falling back toward the mid-$49.00 range. The continuation of the bullish outbreak would target the 23 May settlement high of $51.47 as the next likely bullish signal.