Gold retreats to $1200 as DXY continues to erase daily losses

• US T-bond yields support the greenback in the NA session.
• US Dollar Index recovers above 94.
• Wall Street remains on track to end the day lower.

After spending the first half of the day below the $1200 mark, the XAU/USD pair gained traction as the greenback came under a renewed selling pressure and advanced to a daily high of $1204. However, with the dollar starting to gather strength on the back of rising Treasury bond yields, the pair reversed its course and was last seen trading near $1200, where it was up a little less than $1 on the day.

The dollar's market valuation on Monday seems to be the primary driver of the pair's price action. After recording heavy losses against its European rivals, the buck struggled to find demand and the US Dollar Index slumped to a daily low at 93.84. Although the mixed macroeconomic data releases from the U.S. failed to help the dollar, the strong performance of the T-bond yields provided a boost to the DXY and lifted it to 94.20, where it's virtually unchanged on the day. As of writing, both the 10-year and the 2-year T-bond yields were up 0.5%.

In the meantime, with investors staying cautious as import tariffs on $200 billion worth of Chinese goods going into effect, major equity indexes in the U.S. started the day in the red to allow the precious limit its losses. At the moment, the Dow Jones Industrial Average and the S&P 500 were down 0.7% and 0.5%, respectively.

Later in the week, the FOMC is going to publish its monetary policy decisions and is widely expected to hike the policy rate by 25 bps. The tone of the policy statement and Chairman Powell's comments are likely to be the next significant catalysts for the USD.

Technical levels to consider

With a daily close below $1200 (psychological level), the pair could extend its losses toward $1191 (Sep. 21 low) and $1183 (Aug. 24 low). On the upside, resistance could be seen at $1202 (50-DMA), $1210 (Sep. 21 high) and $1217 (Aug. 10 high).