Dollar Slips, Gold Shines Amid U.S. Gridlock

Key Takeaways:

*Dollar pressured: Shutdown risk threatens data flow, undermining Fed’s data-dependent stance.

*Weak U.S. signals: Hiring at one-year low, consumer confidence sharply lower.

*Gold rallies: Near record highs on weak dollar, falling real yields, and Fed cut bets.

Market Summary:

The U.S. dollar has extended its slide as fiscal uncertainty and a cautious Federal Reserve continue to erode investor confidence. The looming government shutdown dominates sentiment, raising the risk of delayed economic releases such as Nonfarm Payrolls and complicating the Fed’s data-dependent policy stance. This uncertainty has left policymakers constrained, with officials acknowledging signs of labor market cooling but maintaining a “modestly restrictive” tone, dampening hopes for accelerated easing.

Recent economic signals reinforce the bearish backdrop for the dollar. JOLTS Job Openings surprised on the upside, but hiring fell to its weakest level in over a year, while consumer confidence dropped more than expected, underscoring household pessimism. With fiscal gridlock adding to economic risks, the dollar’s long-standing safe-haven appeal is being questioned, particularly as ECB officials highlight the euro’s potential role as a global anchor of stability.

Against this backdrop, gold has emerged as a prime beneficiary, holding near record highs as investors flock to safety. The combination of a weakening dollar, falling real yields, and rising political uncertainty has fueled bullion’s rally, making September its strongest month since 2011. Markets now price a nearly 97% probability of an October Fed rate cut, further reducing the opportunity cost of holding gold. ECB President Christine Lagarde’s remarks challenging the dollar’s dominance in global finance have added momentum to gold’s role as an alternative store of value.

While near-term pullbacks are possible after such a steep rally, the structural drivers for gold remain firmly supportive. The longer U.S. fiscal dysfunction persists, the greater the likelihood of slower growth and more accommodative monetary policy conditions that are unequivocally bullish for gold while keeping the dollar on the defensive.

Technical Analysis

DXY, H4

DXY has pulled back after failing to sustain above the 98.75 resistance, slipping back toward the 97.55–98.10 support zone. The index is now hovering near its 20- and 50-period moving averages, suggesting indecision after last week’s breakout from the descending trendline. Immediate resistance remains at 98.10, with a break higher opening the path back to 98.75 and potentially 99.60. On the downside, a close below 97.55 risks extending losses toward 97.00 and deeper at 96.60.

RSI has eased to 46, pointing to fading bullish momentum and leaving room for further downside before entering oversold conditions. MACD has turned negative, with the histogram slipping below zero and momentum leaning bearish, though downside follow-through remains moderate.

Overall, DXY is consolidating after a failed upside attempt, with short-term risks tilted lower while holding above 97.55. A sustained recovery above 98.08 would re-establish bullish momentum, while a break under 97.55 could shift control back to sellers.

Resistance levels: 98.10, 98.75
Support levels: 97.55, 97.00

XAUUSD, H4

XAUUSD has extended its advance to test the 3,860 zone, marking a fresh high within its ongoing bullish trend. The rally comes after breaking above the 1.272 Fib extension at 3,780, with the next target sitting at the 1.618 Fib near 3,960 if upside momentum persists. On the downside, immediate support is now at 3,780, followed by 3,780, with deeper support at the 3,641 base of the extension move.

RSI is holding at 64, suggesting strong bullish momentum but also showing early signs of a negative divergence, raising the risk of near-term consolidation. MACD remains in positive territory with widening histogram bars, reinforcing the bullish structure, though short-term momentum looks stretched.

Overall, gold’s medium-term outlook remains bullish, with pullbacks likely to be shallow while price holds above 3,780. A breakout above 3,861 would extend the rally toward 3,960, while a failure to hold current levels could trigger a corrective pullback toward 3,780.

Resistance levels: 3900.00, 3960.00
Support levels: 3780.00, 3735.00