Dollar Slips, Gold Holds as Fed Outlook in Focus

Key Takeaways:

*Dollar softens as mixed U.S. data keeps Fed in play, with weaker industrial output and slumping sentiment tempering recent retail resilience.

*Gold steadies on softer yields and policy uncertainty, with safe-haven demand supported by U.S. fiscal concerns and steady central bank buying.

*Market focus shifts to U.S. inflation and Powell’s Jackson Hole signals, as any hawkish tilt could cap gold’s rebound while reviving dollar strength.

Market Summary:

The U.S. Dollar Index (DXY) slipped as traders grew cautious ahead of upcoming inflation releases, with recent U.S. data painting a mixed picture of the economy. Retail sales showed resilience, but weaker industrial production and a sharp drop in consumer sentiment highlighted fragility in domestic demand. This has kept the greenback from gaining momentum, reinforcing market speculation that the Federal Reserve could tilt more dovish if growth headwinds persist. Adding to the unease are fiscal sustainability concerns, with ballooning U.S. deficits raising questions about the long-term strength of the dollar and potentially curbing foreign demand for Treasuries.

Gold prices extended their rebound as weaker dollar dynamics and softer U.S. yields bolstered safe-haven flows. Although easing geopolitical tensions reduced immediate demand for protection, investors remain drawn to bullion amid lingering uncertainty over Fed policy, global growth risks, and U.S. fiscal imbalances. Lower real yields and steady central bank purchases have also provided structural support, cushioning gold against bouts of profit-taking. The metal’s ability to hold firm even as risk appetite improves reflects its dual role as both a hedge against policy missteps and a store of value in times of fiscal stress.

The interplay between a cautious dollar and resilient gold highlights a market dominated by policy expectations and fiscal concerns. In the near term, the trajectory of both assets will hinge on U.S. inflation data and signals from Fed Chair Powell at Jackson Hole, with the potential for renewed volatility should inflation surprises alter the rate outlook. A dovish Fed tilt would likely weaken the dollar further while reinforcing support for gold, whereas stickier price pressures could deliver the opposite outcome.

Technical Analysis

DXY, H4

The US Dollar Index (DXY) is trading above the $98.35 level, currently testing the 61.8% Fibonacci retracement of the recent decline. Price has rebounded strongly from the $97.80 support area, where buyers stepped in to defend the 78.6% retracement, and momentum now favors further upside. A sustained close above $98.70, the 50% retracement level, would confirm improving bullish structure and pave the way for a move toward $99.10 and $99.55.

Momentum indicators support the constructive bias. The Relative Strength Index (RSI) has climbed to 62, trending upward and showing that buyers are gaining control while still below overbought conditions, leaving room for further extension. Meanwhile, the MACD has completed a bullish crossover, with the histogram turning positive, reinforcing the shift in momentum toward the upside. Volume has also shown a modest pickup during the recent rally, adding weight to the bullish case.

Overall, the technical outlook for the dollar index is improving, with the rebound from key support aligning with bullish momentum signals. Traders may look for continuation above $98.70 for potential long entries, while keeping an eye on $97.80 as the line in the sand for downside risk.

Resistance levels: 98.35, 98.70
Support levels:  97.15, 96.30

XAUUSD, H4

Gold (XAU/USD) has extended its pullback, last trading near $3,318 after slipping below the $3,358 pivot zone. Price action remains under pressure as the metal continues to respect a descending trendline from the August highs, while multiple failed attempts to reclaim the 100-period moving average around $3,351 have reinforced near-term bearish momentum. 

Momentum indicators lean bearish. The Relative Strength Index (RSI) is hovering around 35, edging closer to oversold territory and suggesting sellers remain in control. Meanwhile, the MACD has widened its bearish signal, with both the MACD line and histogram deepening in negative territory, signaling sustained downside momentum. Volume has also remained elevated during the recent declines, adding weight to the bearish bias.

Overall, the technical outlook for gold is softening, with the trend structure turning bearish below $3,335. Traders may watch for a decisive break under $3,297 to confirm downside continuation, while only a move back above $3,351 would begin to neutralize the current bearish pressure.

Resistance levels: 3351.00, 3381.00
Support levels: 3297.00, 3250.00