Dollar Index, Gold: Market Participants Hold Breath Ahead of US Elections

However, when the focus shifted to the election, the greenback recovered. Meanwhile, gold prices have rallied recently due to the uncertainty surrounding the upcoming election. Trump and Kamala are almost tied. Therefore, there is a high chance of market turmoil after the final result.

Consequently, some traders have preferred the safety of gold. However, this will likely change after the election as it becomes clear who will become the next president.

Fundamental Analysis

The race between Kamala Harris and Donald Trump is tight, and there is no clear indication of who might win the election. As a result, traders will likely remain cautious, anticipating market turmoil. Nevertheless, the outcome might change the fiscal and monetary policy outlook, affecting the dollar index and gold.

According to experts, a Kamala win would likely mean continuing the current fiscal policies. Kamala represents the outgoing president’s Democratic party, so there is a high chance she will uphold and continue most policies already in place. As a result, the Federal Reserve will likely continue with its rate-cutting cycle. Such an outcome would weigh on the dollar index. Meanwhile, gold would rally as traders anticipate lower borrowing costs in the US, making the yellow metal more appealing.

On the other hand, Republican Donald Trump would likely change policies on tariffs, taxes, and immigration. Experts believe his policies will drive inflation higher. Therefore, the Fed would be forced to pause or even pivot to rate hikes. Such an outcome would boost the dollar index and Treasury yields. On the other hand, the non-yielding metal would suffer.

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Dollar Index Technical Analysis

On the technical side, the dollar index has eased from recent peaks near the 104.50 level. The price has traded in a strong uptrend, respecting the 22-SMA as support. However, momentum peaked when the price broke above the 102.01 resistance level. From there, the RSI started making lower highs, which showed weaker bullish momentum. Bulls finally gave up control at the 104.50 resistance level.

Nevertheless, although bears have punctured the 22-SMA support, the price is still moving sideways, with support at 103.50 and resistance at 104.50. The price must break below 103.50 to confirm a new downtrend and start making lower lows and highs. If Kamala wins, traders might unwind the recent Trump trade, leading to a downtrend in the dollar index.

On the other hand, if bulls gain momentum, the price might breach the 104.50 resistance to make a new high and continue the previous uptrend. A Trump win would likely support such a move.

Key Support Levels

Support 1: 103.50, a recent swing low

Support 2: 102.01, a solid resistance turned support level

Key Resistance Levels

Resistance 1: 104.25, the recent swing high

Gold Technical Analysis

Meanwhile, gold is retreating after making a new high in its uptrend. Bulls recently paused near the 2790.03 resistance level. This was a new high in the uptrend, but the RSI revealed weakness. The RSI made a bearish divergence, indicating fading bullish momentum. At the same time, the RSI now trades below 50, suggesting strong bearish momentum.

As a result, the price broke below the 22-SMA support. The break indicates a shift in sentiment that might lead to a downtrend. If Trump wins, the outlook for Fed rate cuts will shift. Markets might start expecting a pause or pivot. Consequently, gold prices might collapse to retest the 2710.71 and 2630.39 support levels.

On the other hand, if Kamala wins, the price might rebound due to rate cut optimism. Therefore, it might break above the 22-SMA and the 2790.03 resistance level, continuing the uptrend.

Key Support Levels

Support 1: 2710.71, a recent swing low

Support 2: 2630.39, a strong support and resistance level

Key Resistance Levels

Resistance 1: 2790.03, a recent swing high

Final Thoughts

The long-awaited US presidential election is here. A new Democratic president will likely continue with most of Biden’s policies, maintaining the outlook for Fed rate cuts. Such an outcome would weigh on the dollar index and boost gold prices. On the other hand, a Republican win would lead to many changes in fiscal policy that would impact inflation and interest rates. Higher inflation would boost the greenback and sink gold prices.

Meanwhile, market participants are still absorbing the recent US employment figures, which solidified bets for a Fed rate cut. Immediately after the election, the FOMC meeting might contain clues on future moves that might also impact the dollar index and gold.

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