US Dollar Index sees downside below 106.00 as recession fears elevate, spotlight is on Fed

• The DXY is eyeing more downside if it drops below 106.00 as recession fears escalate.
• Odds of a disappointment in the US employment data look imminent.
• A downward consensus for the US Durable Goods Orders will have significant impact on the DXY.

The US dollar index (DXY) has given a downside break of the consolidation formed in a narrow range of 106.42-106.53 in the late New York session. The asset has remained vulnerable from the past week and is likely to display more downside after violating the critical support of 106.00. A slippage below the above-mentioned cushion may drag the DXY towards 105.60.

Fed rate hike seems restricted to 75 bps

No doubt, the current situation of the price pressures is forcing the Federal Reserve (Fed) to follow the footprint of the Bank of Canada (BOC) and accelerate its borrowing rates by 100 basis points (bps). The overall inflation rate has climbed to 9.1% and has not displayed any signs of exhaustion yet. However, the signs of recession in the US economy are restricting the Fed till 75 bps rate hike. Soaring jobless benefits and expectations of a significant decline in the US Nonfarm Payrolls (NFP) data are bolstering the odds of a recession in the US economy.

A divergence in Retail Sales and Durable Goods Orders looks imminent

The consensus for the US Durable Goods Orders is -0.2% vs. 0.8% reported earlier. It is worth noting that July’s Retail Sales print remained at 1%, significantly higher than the consensus and former print. A huge divergence between Retail Sales data and US Durable Goods Orders data indicate that soaring energy bills and costly food products were responsible for higher former economic data and the overall demand is vulnerable.

Key data this week: Consumer Confidence, New Home Sales, Durable Goods Orders, Pending Home Sales, Core Personal Consumption Expenditure (PCE), Gross Domestic Product (GDP), Initial Jobless Claims, and Michigan Consumer Sentiment Index (CSI).

Major events this week: Fed monetary policy