Greenback Falters as Inflation Test Looms, Gold Stays Bid

Key Takeaways:

*Dollar Index consolidated as traders await Core PCE and GDP data later this week.

*Softer PMIs, CPI, and PPI have reinforced expectations for further Fed rate cuts, with the OECD suggesting scope for up to three more.

*Gold briefly hit record highs before pulling back on profit-taking; underlying support remains strong on weak yields and USD softness.

Market Summary:

The U.S. Dollar Index (DXY) continued to hover within a narrow consolidation band between 97.00 and 97.55 as investors adopted a wait-and-see approach ahead of this week’s key U.S. data, including GDP and the Core PCE Price Index. Market sentiment remains fragile after Powell’s recent rate cut, with softer-than-expected PMI readings adding to signs of slowing momentum. Manufacturing PMI printed at 52.0, below consensus, while Services PMI slipped to 53.9, both underscoring weakness in the broader economy. These figures reinforced expectations that the Fed may be forced into additional easing later this year if inflation and growth continue to disappoint.

Underlying structural concerns are also weighing on the greenback. The OECD’s latest outlook suggested the Fed has room for up to three further cuts, intensifying the dovish narrative. At the same time, questions over the Fed’s independence—highlighted by the Bank of Canada governor—have raised doubts about the U.S. dollar’s long-term credibility as a safe-haven currency. Coupled with signs that foreign investors are hedging more aggressively against U.S. exposure, the dollar is struggling to attract sustained demand, leaving it vulnerable to renewed downside should upcoming data confirm further economic softening.

Gold has benefited directly from these dynamics, briefly testing record highs before easing back on profit-taking. Expectations of a prolonged easing cycle have driven U.S. real yields lower, eroding the opportunity cost of holding non-yielding assets such as gold. While equities have shown periods of resilience, tempering near-term safe-haven demand, persistent concerns over U.S. fiscal sustainability and global growth provide strong structural support for bullion. The recent pullback is viewed by many as a tactical correction rather than a change in fundamentals, with bargain-hunters likely to re-emerge on dips.

Looking ahead, the dollar and gold will be guided by the same set of catalysts—most notably, the Core PCE report and GDP release. A softer inflation print would reinforce expectations of further Fed cuts, pressuring the dollar while propelling gold toward fresh record highs. Conversely, a surprise rebound in growth or inflation could offer the greenback a reprieve and trigger a short-term correction in gold. For now, traders remain positioned for volatility, with the balance of risks skewed toward continued dollar weakness and further strength in the precious metal.

Technical Analysis 

DXY, H4

The Dollar Index is consolidating below the 97.55 resistance after a failed attempt to sustain above the 97.55 zone. Price action has been capped between 97.00 support and 98.10 resistance, suggesting range-bound conditions after the recent bounce from 96.60. The 20/50 SMA crossover is flat, reflecting a lack of strong directional momentum.

RSI sits near 50, showing neutral momentum with no clear overbought or oversold signals. MACD is hovering close to the zero line with a slight bearish tilt, indicating that upside momentum is fading.

In the near term, a decisive break below 97.00 could trigger further downside toward 96.60, while a close above 97.55 would expose 98.10 as the next resistance. For now, consolidation dominates, with traders watching U.S. data as potential catalysts for a breakout.

Resistance levels: 97.55, 98.10
Support levels: 97.00, 96.60

XAUUSD, H4

Gold’s rally has stalled near 3,753, with the price pulling back after testing the upper trendline extension around the 3,821 Fib 1.272 projection. The recent highs were met with selling pressure, and momentum indicators are flashing early signs of weakness. The key short-term support is seen at 3,721, followed by 3,635 if selling deepens. On the topside, 3,753 remains immediate resistance, and only a close above 3,821 would confirm fresh bullish continuation.

RSI retreated from the overbought zone sits at 72 while forming a bearish divergence against price, highlighting fading upside momentum. Similarly, MACD has also printed a divergence, with histogram bars contracting despite price making higher highs shows a classic warning of a potential correction.

Overall, gold remains in a medium-term bullish trend, but the overextended move combined with bearish divergences suggests a pullback or consolidation phase is likely before bulls can attempt another breakout. 

Resistance levels: 3780.00, 3821.00
Support levels: 3680.00, 3635.00