Dollar Capped, Gold Underpinned Amid Fed Policy Split

Key Takeaways:

*Fed policy split dominates market direction: December FOMC minutes revealed the deepest internal division in decades, leaving both the dollar and gold highly sensitive to rate expectations.

*Dollar capped by ambiguity: Despite dovish market expectations, the greenback remains soft-to-range-bound as long-end Treasury yields reflect fiscal and debt concerns, and housing data shows mixed signals.

*Gold benefits from uncertainty: Precious metals are the strongest-performing asset class post-FOMC, supported by a weaker dollar, rising rate-cut expectations, and policy indecision.

Market Summary: 

The U.S. dollar and gold markets are reacting to the uncertainty highlighted by the Fed’s December minutes, which exposed the deepest internal policy split in nearly four decades. The 25bps rate cut on Dec. 9–10 was dovish but far from unanimous that three officials dissented, and several supporters described the decision as “finely balanced.” Most policymakers signaled further easing could be appropriate if inflation slows, while a faction argued rates should stay on hold amid concerns about entrenched inflation.

This ambiguity has left the dollar soft-to-range-bound, even as rate-cut odds for March and April rise. Long-end Treasury yields remain sticky, reflecting investor unease over U.S. fiscal deficits, while thin year-end liquidity has amplified FX volatility. Recent Case-Shiller and FHFA data showed slowing house price growth (1.7% y/y, weakest in a decade), supporting eventual easing but leaving enough resilience to keep Fed officials cautious.

Gold has been a clear beneficiary, outperforming other assets on a weaker dollar, rising rate-cut expectations, and policy uncertainty. Volatile price action including a rebound followed by a U.S.-session retreat underscores bullion’s sensitivity to Fed guidance. Policy divergence reinforces gold’s role as a hedge, particularly as markets price a smoother path of easing than the Fed appears ready to endorse.

Adding support, the minutes confirmed that reserve balances are “ample,” prompting the Fed to resume purchases of short-term Treasury bills to maintain liquidity. While framed as technical, markets interpret this as a subtle lean toward accommodative policy, underpinning longer-term gold demand despite intermittent profit-taking. Overall, the divided Fed, dovish expectations, and liquidity measures are keeping the dollar capped while gold remains supported by uncertainty and ongoing liquidity.

Technical Analysis

DXY, H4

The US Dollar Index (DXY) continues to exhibit a deteriorating medium-term technical structure on the chart, with price action remaining capped below its former rising trendline. This ascending trendline, which had supported the index since early October, was decisively broken in early December, marking a transition from trend-supported advances into a corrective-to-bearish phase.

Following the breakdown, DXY attempted several rebounds but consistently failed to reclaim key resistance levels. The rejection near the 98.50 resistance level confirmed this area as a significant supply region, reinforcing the loss of bullish momentum. Price has since transitioned into a lower trading range, characterized by lower highs and compressed recovery attempts, signaling weakening upside conviction.

Momentum indicators reflect this neutral-to-bearish bias. The RSI has rebounded toward the mid-50s, indicating short-term stabilization, but remains below the levels typically associated with strong bullish continuation. This suggests that recent upside attempts are corrective rather than impulsive. Meanwhile, the MACD has crossed marginally above the zero line, but histogram expansion remains muted, signaling that bullish momentum is tentative and lacks follow-through.

Resistance Levels: 98.50, 99.00

Support Levels: 98.00, 97.55

GOLD, H4

Gold has undergone a notable deterioration in its near-term technical structure on the chart following a sharp rejection from the upper resistance band near the 4,420–4,535 region. After a strong impulsive rally, price failed to sustain acceptance above this supply zone, triggering a swift bearish reversal and signaling exhaustion in bullish momentum.

The rejection was followed by a decisive breakdown below the prior consolidation area and the rising short-term trend support, marking a transition from trend continuation into a corrective-to-bearish phase. Price has since slipped back into the 4,300–4,350 zone, confirming that the recent upside breakout was unsustainable and has evolved into a bullish trap. 

Momentum indicators reinforce the bearish shift. The RSI has dropped sharply toward the low-30s, reflecting aggressive downside pressure and a clear loss of bullish control. While oversold conditions may allow for short-lived bounces, the absence of sustained RSI divergence suggests that downside risks remain active. Meanwhile, the MACD has completed a strong bearish crossover, with expanding negative histogram bars indicating accelerating bearish momentum rather than stabilization.

Resistance Levels: 4420.00, 4535.00

Support Levels: 4330.00, 4260.00