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.

EUR/USD

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.

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AUD/USD

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.

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GOLD

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.

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