Dollar and Gold Hold Steady Ahead of Key Fed Test

Key Takeaways:

*Dollar steadies as Fed credibility tested by political pressure and softening labor data.

*Gold regains footing amid consolidation, with volatility likely post-FOMC and PCE data.

*Fiscal concerns and election risks may limit dollar upside even if Fed stays cautious.

Market Summary:

The U.S. Dollar Index (DXY) held steady on Tuesday as markets entered a holding pattern ahead of a pivotal week packed with top-tier U.S. data and a critical Federal Reserve policy decision. The greenback has traded largely rangebound in recent sessions, weighed down by mixed macroeconomic signals and growing speculation over the Fed’s next move. While consumer confidence rose more than expected in July, JOLTS job openings disappointed, underscoring ongoing labor market softening. These signals, combined with earlier downside surprises in CPI and PPI, have fueled speculation that the Fed may lean more dovish in the months ahead—though policymakers remain outwardly cautious.

Political pressure continues to mount on the central bank, with renewed calls from the White House to begin easing rates, while internal FOMC divisions, particularly between doves like Waller and hawks such as Bowman, highlight the growing policy uncertainty. However, without a material downside surprise in the upcoming Core PCE data or Friday’s Nonfarm Payrolls, the Fed is likely to remain on hold. That said, medium-term risks to the dollar remain tilted to the downside amid rising scrutiny over ballooning U.S. fiscal deficits, an increasingly polarized political environment, and unresolved tariff risks tied to global trade realignment.

Gold prices, meanwhile, have stabilized following last week’s sharp decline, recovering modestly on bargain hunting and hedging activity ahead of potential market volatility. The metal continues to consolidate within a tight $3,300–$3,350 range, caught between limited safe-haven flows and lingering inflation concerns. A tentative ceasefire in the Middle East has calmed geopolitical nerves for now, reducing urgency for haven assets. Yet, with U.S. inflation expectations still elevated and political pressure building on the Fed, some investors are reengaging with gold’s defensive appeal.

Traders are now closely watching for signals of a potential dovish tilt at this week’s FOMC meeting. A softer PCE reading or cautious Fed commentary could provide the catalyst gold bulls need for a sustained breakout. Until then, both the dollar and gold appear locked in a short-term holding pattern—awaiting clarity from economic data and central bank signals to determine the next leg of direction.

Technical Analysis 

DXY, H4: 

The Dollar Index (DXY) chart shows that bullish momentum has stalled near the 99.30 psychological resistance after a sharp rally from the 97.80 support area. Price action broke out of the previous descending channel and surged higher, supported by a strong bullish impulse that cleared multiple resistance levels, including 98.25 and 98.75. However, the upward move now appears to be losing steam just beneath the 99.30 resistance zone, with a small pullback underway.

The Relative Strength Index (RSI) has retreated from overbought territory above 70, now hovering around 63, indicating a possible cooling in bullish momentum. This divergence could suggest a short-term consolidation or mild correction. Meanwhile, the MACD remains above the signal line, showing that upward bias is still intact, though the histogram bars are beginning to shorten and shows an early sign of weakening momentum.

As long as DXY holds above 98.75 and especially 98.25, the bullish structure remains intact. A decisive break above 99.30 could open the path toward retesting the 99.98 resistance. On the downside, failure to hold 98.75 may trigger a deeper retracement toward 98.25 or even 97.80, especially if upcoming macro data disappoints or U.S. yields retreat.

Resistance Levels: 99.30, 99.98

Support Levels: 98.75, 98.25

XAUUSD, H4: 

The chart of XAU/USD reveals a cautious recovery attempt following a sharp decline from the mid-July highs near $3,415. After falling below the 38.2% Fibonacci retracement level ($3,378), gold has stabilized around the 23.6% retracement ($3,331), now hovering near $3,329 as of the latest session. The recent pullback appears to have found interim support near the $3,300 handle, a level reinforced by prior price congestion and a horizontal support zone.

Technical indicators point to tentative bullish momentum. The RSI has rebounded to 44 from sub-40 levels, signaling easing bearish pressure, though it remains below the neutral 50 threshold. Meanwhile, the MACD is showing early signs of a bullish crossover, with the MACD line turning upward and histogram bars flipping green suggesting weakening downside momentum. However, the signal remains fragile and unconfirmed.

If gold breaks decisively above $3,331 (23.6% Fib), the next resistance stands at $3,378 (38.2% Fib), followed by $3,415 (50% Fib). On the downside, a sustained move below $3,300 could expose the $3,256 support level (swing low and 100% retracement). Overall, gold remains in a corrective phase within a broader downtrend unless bulls reclaim the $3,378 zone convincingly.

Resistance Levels: 3331.00, 3378.00

Support Levels: 3300.00, 3256.00