Fed Bets Cool the Dollar as Gold Faces a Technical Storm

Key Takeaways:

*The U.S. Dollar steadied near recent lows as traders balanced weaker economic data with hawkish Fed commentary.

*Treasury yields slipped and rate futures priced in a 70% chance of a December cut, keeping focus on the upcoming Core PCE data.

*Gold suffered its sharpest one-day drop in over five years, retreating toward the $4,000 mark amid technical liquidation and profit-taking.

Market Summary: 

The U.S. Dollar steadied near recent lows as markets balanced weakening domestic data against cautious messaging from Federal Reserve officials. While policymakers such as Lisa Cook and Mary Daly reiterated that inflation “remains above target despite progress,” a string of softer U.S. indicators including manufacturing PMIs and housing data has reinforced expectations of slowing momentum. Treasury yields have slipped accordingly, and futures markets now assign roughly a 70% probability of a December rate cut. Traders remain focused on Friday’s Core PCE report, which could either validate the disinflation narrative or force a partial repricing of Fed easing bets.

Gold, meanwhile, is navigating a violent yet arguably healthy correction after a parabolic surge that saw prices rise over 50% year-to-date. The metal suffered a 5% one-day plunge earlier this week as its sharpest in over five years as overextended momentum and speculative positioning triggered widespread profit-taking. Prices have since gravitated toward the $4,000 psychological level, where buyers are beginning to test the market’s conviction. Despite the technical liquidation, major institutions such as UBS see the move as a necessary reset rather than a trend reversal, citing the persistence of gold’s core macro drivers.

Those supports including geopolitical flashpoints, sustained central bank demand, and expectations of Fed rate cuts continue to underpin the broader bullish case for bullion. The “debasement trade,” centered on concerns over soaring global debt and long-term fiat erosion, remains intact. Analysts maintain upside targets near $4,700 per ounce should macro or political instability re-emerge. For now, the market is in consolidation mode as traders await two key catalysts: the upcoming U.S. CPI release and a series of high-stakes meetings between U.S., Chinese, and Russian leaders that could reshape global risk sentiment.

In essence, gold’s sharp correction contrasts with a dollar caught in limbo reflecting diverging paths shaped by Fed timing uncertainty and shifting investor psychology. Should inflation data undershoot and geopolitical risks intensify, bullion could reassert its dominance, while the dollar’s role as a safe-haven hedge weakens further into year-end.

Technical Analysis

DXY, H4: 

The U.S. Dollar Index (DXY) is showing signs of consolidation after rebounding from the 98.15 support zone, with price action now hovering near the 98.80 level. Despite a mild recovery, the index remains constrained below the 99.55 resistance, where selling pressure has repeatedly emerged. The 20- and 50-period moving averages are flattening, suggesting a potential pause in directional momentum as traders await further catalysts to define the near-term trend.

On the momentum front, the RSI sits around 56, reflecting a neutral-to-bullish bias but lacking strong upside conviction. Meanwhile, the MACD remains just above the zero line, with its histogram showing fading bullish momentum indicating that buying strength may be losing steam.

Overall, the DXY technical outlook appears cautiously constructive but indecisive. Sustained strength above 98.80 could pave the way for another test of the 99.55 resistance zone, while a drop below 98.15 would shift short-term sentiment back in favor of sellers, potentially exposing the 97.50 level. The dollar’s next directional move will likely depend on upcoming U.S. data and risk sentiment across global markets.

Resistance Levels: 99.55, 100.25

Support Levels: 98.15, 97.50

GOLD, H4: 

Gold (XAU/USD) continues to trade under pressure, extending its corrective phase after breaking below the ascending trendline that had guided the recent uptrend. Price action remains capped beneath the $4,200 zone, where both the 20- and 50-period moving averages converge reinforcing the presence of short-term resistance. The metal recently found support near $4,050, marking a temporary stabilization point after its steep pullback from the $4,375 high.

Momentum indicators suggest that bearish pressure may be easing but not yet reversing. The RSI hovers around 44, indicating that selling momentum has moderated though buyers have yet to regain control. Similarly, the MACD remains in negative territory, with its histogram showing slowing bearish momentum shows a sign that a short-term base could be forming.

Overall, gold’s near-term bias remains mildly bearish below $4,200, with risk skewed toward further downside unless buyers can reclaim that level convincingly. A sustained move below $4,050 would likely expose the next support zone near $3,950, while a rebound above $4,200 could trigger recovery toward $4,295 and potentially reestablish the broader uptrend.

Resistance Levels: 4135.00, 4200.00

Support Levels: 4050.00, 3950.00