DOLLAR SINKS TO FRESH 2017 LOWS AS EURO ACCELERATES

It has been a disastrous week for the US dollar, which continues to plumb new lows against a basket of world currencies. This time, it’s the euro that is causing the most damage, as traders rally behind hawkish sentiment from European Central Bank (ECB) officials.

ECB President Mario Draghi stoked the euro bulls earlier this week when he acknowledged that the Eurozone economy was regaining momentum. Though pledging to keep monetary policy highly accommodative, Draghi signaled that policymakers were pleased with the recent progress.

Like other central banks, the ECB has embarked on a massive stimulus program to boost growth and inflation in the euro area economy. Recent evidence suggests that some of those initiatives were finally bearing fruit.

The US dollar index (DXY) plunged to fresh 2017 lows on Tuesday. It was down another 0.2% ahead of the North American session.

Despite having a rough week, the dollar has managed to score big gains against the Japanese yen, which is currently facing broad selling pressure. Although gains slowed on Wednesday, the USD/JPY continues to trade above 112.00.

There were no major events scheduled during the European session. Italy’s consumer price index (CPI) weakened unexpectedly in June, government data showed. Italy’s CPI rate slipped 0.1% during the month and was up just 1.2% from a year ago.

Meanwhile, a closely watched indicator of Swiss business sentiment also declined sharply this month.

EUR/USD

Bullish momentum has returned to the common currency, with the EUR/USD exchange rate approaching the 1.14 handle. The pair was last seen trading at 1.1379, having gained 0.4% from the previous close. The euro is currently trading at more than one-year highs. Immediate resistance is located near the daily high of 1.1390. Above this level, prices could extend beyond 1.14 in relatively short order. On the opposite side of the spectrum, the EUR/USD faces immediate support at 1.1260. The euro is currently overbought, according to the short-term oscillators. This suggests that a short-term pullback may be in order.

USD/JPY

A rout in the US dollar was no match for a sinking yen. The USD/JPY is currently trading at more than one-month highs. However, further upside is considered limited as the pair struggles with resistance levels in the mid-112.50 range. On the opposite side of the ledger, immediate support is located at 111.60.

GOLD

Bullion extended its rally on Wednesday, as momentum returned to the precious metals market. However, prices remain capped below a key technical resistance. Gains have been muted despite the dollar’s recent plunge, a sign that upside momentum is limited. A break above $1,258 would likely confirm a bullish reversal, leading to a higher breakout back toward the $1,275 handle.