Gold (XAU/USD) partially recovered from the losses incurred after reaching a more-than-one-week low earlier on Friday. However, the potential for further gains remains limited due to the prevailing bearish fundamental backdrop. Against the backdrop of the Federal Reserve's restrictive monetary policy and uncertainty surrounding the next stage of negotiations between the United States and Iran, the U.S. dollar has continued to strengthen for a third consecutive day.

In particular, the U.S. Dollar Index (DXY), which measures the dollar's performance against a basket of major currencies, has reached its highest level since May 2025, putting pressure on demand for the precious metal.

According to CME Group's FedWatch Tool, market participants currently estimate the probability of an interest rate increase in September at approximately 70%. This continues to support elevated U.S. Treasury yields and contributes to further strengthening of the U.S. dollar. At the same time, optimism surrounding the temporary ceasefire between the United States and Iran is gradually fading, as key disagreements between the two sides remain unresolved. An additional source of uncertainty emerged after U.S. Vice President JD Vance canceled his planned trip to Switzerland for negotiations, citing the incomplete nature of the process.

Further tension stems from Israeli airstrikes in Lebanon, which could complicate or derail potential agreements between the United States and Iran. Any signs of renewed escalation in the Middle East, as well as a lack of progress in negotiations, could boost demand for the U.S. dollar as a safe-haven asset. Meanwhile, trading activity is likely to remain subdued due to the U.S. bank holiday associated with Independence Day celebrations.

Nevertheless, judging by current price dynamics, gold may end its third consecutive week in negative territory as investor attention remains focused on developments in the Middle East conflict.

From a technical perspective, repeated failures to consolidate above the 200-day Exponential Moving Average (EMA) throughout the week, followed by a subsequent decline in prices, point to continued seller dominance. Momentum indicators remain in negative territory, further confirming the bears' advantage in the market.

The 200-day EMA at $4,368 serves as the nearest significant resistance level. To gain confidence in a continued recovery, bulls need to secure a daily close above this level. Until then, XAU/USD remains vulnerable to further declines, and any additional selling pressure is likely to be driven by bearish momentum rather than by tests of specific technical levels on the daily chart.