Dollar Extends Slide to Two-Year Low Amid as Policy Uncertainty Looms

Key Takeaways:

*DXY fell for the sixth straight session, reaching its lowest level since March 2022 amid rising political uncertainty.

*Fears of expanding U.S. deficits and renewed trade tensions with Japan, weighing on the dollar and dampening Treasury demand.

*As the dollar declines, gold prices have climbed, benefiting from the shift in sentiment and growing political and fiscal uncertainties.

Market Summary:

The U.S. dollar continued its downward trajectory, with the Bloomberg Dollar Index (DXY) falling nearly 0.5% in the latest session, marking a sixth consecutive day of declines and sending the greenback to its lowest level since March 2022. The sustained selloff reflects mounting pressure on the currency as geopolitical tensions ease and political developments stoke concerns over fiscal stability.

The initial catalyst for dollar weakness came last week following the announcement of a ceasefire between Iran and Israel, which eased geopolitical risk premiums and dented demand for the dollars safe-haven appeal. Adding to the bearish sentiment, recent remarks from former President Donald Trump have raised concerns over the independence of the Federal Reserve. Trump, who jokingly suggested replacing Fed Chair Jerome Powell, sparked unease among investors already wary of political influence over monetary policy.

Markets are now shifting focus to fiscal policy as Trumps proposed “big, beautiful” tax cut plan gains traction. While details remain under discussion in the Senate, the potential impact on U.S. government revenue and fiscal deficits is raising red flags among foreign investors. The prospect of widened deficits has weighed on demand for both short- and long-term U.S. Treasuries, further undermining dollar sentiment.

Meanwhile, trade tensions resurfaced after Trump threatened to impose new tariffs on Japan, citing Tokyos reluctance to accept increased U.S. rice exports. The escalation adds another layer of uncertainty for markets already on edge.

In contrast, gold has benefited from the dollars weakness and the broader shift in market sentiment, with the precious metal gaining ground as investors seek safety amid growing political and fiscal headwinds.

With multiple risks still unfolding, the dollar is likely to remain under pressure in the near term as markets reassess the outlook for U.S. policy and its implications for global capital flows.

Technical Analysis

Dollar_Index, H4:

The U.S. dollar extended its long-term downtrend, with the Dollar Index (DXY) dropping over 2.5% from last weeks peak near the 99.25 level. The index slipped to fresh lows not seen since March 2022 after decisively breaching a key support zone around the 97.00 mark—a level that had held firm for three consecutive sessions.

The breakdown below this critical threshold signals a reinforcement of bearish momentum. Technical indicators corroborate the negative outlook: the Relative Strength Index (RSI) is hovering near oversold territory, while the MACD remains flat near its lower bound, suggesting a lack of upward momentum. Price action on the candlestick chart also aligns with a continued bearish bias, pointing to sustained downside risk for the dollar.

Resistance Levels: 97.10, 98.30

Support Levels: 95.75, 94.50

Gold, H4:

Gold posted a technical rebound in the latest session, rising nearly 0.9% as the precious metal recovered from recent losses. The rebound was anticipated following the emergence of a fair value gap (FVG) near the $3,310 level, a zone often targeted for price rebalancing after sharp directional moves.

However, the recovery rally now faces a critical test, with gold approaching a descending trendline resistance just below the $3,330 mark. The proximity to this resistance zone suggests the metal may encounter selling pressure near current levels, potentially triggering a short-term pullback.

Technical indicators offer mixed signals. While the RSI has bounced off recent lows, it remains below the midline, indicating lingering weakness in bullish momentum. Meanwhile, the MACD has formed a golden cross near its lower range—a signal that bearish momentum may be easing and that a potential trend reversal could be underway.

Overall, while short-term upside potential remains, golds trajectory will likely hinge on its ability to break above the $3,330 resistance level with conviction.

Resistance Levels: 3381.80, 3483.75

Support Levels: 3225.00, 3140.40