DOLLAR STRENGTH WEIGHS ON PRECIOUS METALS
The US dollar advanced for a third straight session on Tuesday, as gold prices continued to plumb four-month lows.
The US dollar index (DXY), a weighted average of the greenback against a basket of six currencies that includes the euro, yen, pound, Swiss franc, Swedish krona and Canadian loonie, edged up 0.1% to 96.11. That was the highest level in nearly a week.
There were no major catalysts behind the latest move amid a quiet release schedule on the economic calendar.
Italian industrial output rose 0.7% in May, edging out forecasts calling for 0.5%, the National Institute of Statistics reported Tuesday. That followed a 0.5% drop the previous month.
In annualized terms, output rose 2.8%, better than the 2.2% increase forecast by economists.
The euro was relatively unchanged through the European session, with the EUR/USD hovering around the 1.1400 handle.
Elsewhere, Australian home loans rose less than expected in May, another sign that the country’s housing market was continuing to ebb. Home loans rose 1% in May following three consecutive monthly declines, the Australian Bureau of Statistics reported Tuesday. Analysts in a median estimate forecast gains of 1.5%.
Investment lending for homes was down 1.4% during the same month, following a 2.3% drop the previous month.
The Aussie currency was little changed following the release, with the AUD/USD holding above the 0.7600 handle.
In commodities, gold prices were down 0.3% ahead of New York trade, as bullion continued to struggle for momentum. Prices are hovering at four-month lows, a sign that precious metals were losing their luster.
The common currency traded within a narrow band on Tuesday, as traders continued to await fresh market catalysts in the form of US economic data later this week. The EUR/USD faces critical resistance at the 1.1440/50 area. A failure to break this level could force a broad pullback in price. The euro continues to trade in the vicinity of 1.14, as we had predicted earlier.
The Aussie currency gained traction on Tuesday before running into resistance at the 0.7630 level. This region continues to offer strong resistance for the AUD/USD. A failure to clear it in the near term will limit the pair’s advance toward 0.7700 and beyond. On the opposite side of the ledger, immediate support is located at 0.7600.
Bullion is firmly entrenched in bearish territory, a trend that first emerged during the US dollar’s massive retreat last month. The breakdown of the gold-dollar divergence trade was a strong indicator that the yellow metal was losing momentum. However, traders should keep a close eye on geopolitical developments on the Korean peninsula, as fears of an escalating conflict may boost demand for safe haven assets.