Political Gridlock Undermines Dollar; Gold Surges to Record

Key Takeaways:

*Shutdown Fallout: The U.S. government shutdown is eroding confidence in fiscal management, with Trump’s veto threats amplifying political risk.

*Labor Weakness: ADP private payrolls fell by 32,000 in September, the sharpest decline since March 2023, highlighting cooling labor momentum.

*Fed Blindspot: With Nonfarm Payrolls and other reports delayed, the Fed faces reduced visibility, raising expectations of rate cuts.

Market Summary:

The U.S. Dollar remained under pressure as the government shutdown entered its second day, amplifying concerns about fiscal governance and political dysfunction. President Trump heightened tensions by accusing Democrats of “sabotaging the economy” and threatening to veto any interim spending bill without major cuts. With regulators already shuttering and federal workers facing furloughs, rating agencies warned of a credit downgrade if the standoff continues, while Treasury officials cautioned that debt servicing could be strained by mid-October. These warnings have further undermined confidence in U.S. assets and contributed to a broad flight to safety.

Economic data reinforced the bearish narrative. The ADP employment report showed a 32,000 contraction in September private payrolls, the sharpest decline since March 2023, signaling that labor momentum is slowing. The shutdown has also forced delays in critical data releases—including Nonfarm Payrolls—leaving the Fed short of visibility as it heads into its October policy meeting. With growth signals softening and the data blackout hampering policy assessment, futures markets now price in a near-certain rate cut in the coming months, pushing Treasury yields lower across the curve.

Currency markets reflected this shift, with the dollar index sliding to weekly lows and options markets showing higher demand for downside hedges. The narrative has moved beyond tactical weakness, with investors increasingly questioning the institutional credibility of U.S. policymaking. This backdrop has spurred diversification into alternative assets, particularly gold, which has emerged as the key beneficiary.

Gold extended its rally to fresh record highs above $3,895 per ounce, underpinned by safe-haven inflows, falling real yields, and steady central bank buying. Institutional demand has accelerated as U.S. fiscal risks grow, while retail investors have joined the move on expectations of further political instability. The symbolic $4,000 level is now widely seen as within reach, with momentum supported by both fundamentals and technical drivers.

Technical Analysis

DXY, H4

The U.S. Dollar Index (DXY) is consolidating below the 98.10 resistance after rebounding from support near 97.55. Price action has recently broken above a descending trendline but has struggled to sustain momentum, suggesting that the recovery may be losing steam. A decisive push above 98.10 would shift focus toward 98.75, while failure to hold 97.55 could see renewed downside toward 97.00 and 96.60.

RSI is currently at 48, hovering around neutral territory, reflecting the lack of strong directional momentum. MACD is flat just below the zero line, signaling weak bullish pressure and leaving the index vulnerable to renewed selling if buyers fail to regain control.

Overall, DXY remains in a fragile recovery phase, with the 97.50–98.10 range acting as the immediate pivot. A breakout above resistance could provide the dollar with renewed strength, while a slip back below support risks reestablishing the broader bearish bias. Traders will be watching U.S. fiscal headlines and upcoming data releases as key catalysts for the next move.

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

XAUUSD, H4

XAUUSD has extended its rally from the September lows and is now consolidating just below the $3,870 resistance zone, after testing the Fibonacci 1.618 extension near $3,960. The metal remains firmly supported above $3,780–$3,735, where both the 20-period moving average and the 1.272 extension converge, keeping the broader uptrend intact. A sustained break above $3,870 would re-expose the recent high near $3,960, while a failure to hold the $3,780 floor risks a deeper pullback toward $3,635.

RSI currently stands at 59, retreating slightly from overbought conditions but still showing healthy bullish momentum. MACD is moderating after a strong upward push, with the histogram flattening, which signals that momentum is cooling but not yet reversing.

Overall, gold retains a bullish bias within its extended uptrend, though the recent slowdown suggests that the rally may pause for consolidation before attempting another breakout. Traders will be watching the $3,780–$3,870 band closely, as a decisive move outside this range will dictate whether gold extends toward new highs or retraces to rebuild support.

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