US Dollar Index eyes to regain 109.00 ahead of US Durable Goods Orders, Jackson Hole

• US Dollar Index picks up bids to consolidate recent pullback from yearly top.
• Treasury yields underpin US dollar rebound, downbeat data weighed on the greenback.
• Hawkish Fed bets, recession fears gain major attention amid sluggish Asian session.

US Dollar Index (DXY) resumes its upward trajectory towards the multi-year high marked in July, picking up bids to 108.60 during Wednesday’s Asian session, as traders await the key catalysts amid a sluggish day-start.

It’s worth noting that the greenback’s gauge versus the six major currencies poked the multi-year high the previous day before reversing from 109.27. That said, the fears of economic slowdown and the US Federal Reserve’s (Fed) aggressive rate hikes are the main factors that favor the DXY bulls even if the latest weakness in the US data triggered the quote’s pullback.

Recently, Minneapolis Fed President Neel Kashkari mentioned that the biggest fear is that we are misreading underlying inflation dynamics, per Reuters. The policymaker also added that the Fed can relax on rate hikes when compelling evidence of CPI heading toward 2% seen.

That said, Traders in fed funds futures are pricing in a 52.5% chance of a 75 basis-point (bps) rate hike at the Fed meeting next month. On Monday the odds favored a slightly better-than-even chance of a 50 bp hike in September, per Reuters.

On Tuesday, the preliminary readings of the US S&P Global Manufacturing PMI for August eased to 51.3 versus 52.0 expected and 52.2 prior while the Services gauge plunged to 44.1 from 47.3, compared to 49.2 market forecasts. According to S&P Global, the US economy is also in trouble as the Composite PMI shrank to 45, its lowest in 27 months.

Furthermore, the US New Home Sales for July dropped to the lowest levels in six years, to 0.511M from 0.585M prior and 0.575M market forecasts. Furthermore, the US Richmond Fed Manufacturing Index for August dropped to -8.0 compared to the 0.0 previous reading.

Amid these plays, US 10-year Treasury yields rose to the highest in a month, inactive at around 3.05% by the press time, whereas Wall Street benchmarks closed with mild gains. It’s worth noting that the S&P 500 Futures print mild losses by the press time.

Looking forward, a light calendar ahead of the North America session may restrict DXY moves. Following that, US Durable Goods Orders for July, expected 0.6% versus 2.0% prior, will be important to watch for fresh clues. Above all, Friday’s speech by Fed Chairman Jerome Powell at the Kansas City Fed’s symposium in Jackson Hole will be crucial as traders struggle for clear directions on the Fed’s next move.

Technical analysis

Although a two-week-old ascending support line challenges the DXY bears around 108.00, the upside momentum needs validation from the 109.30 to convince the buyers.