US Dollar Index rebounds towards 110.00 with eyes on US Retail Sales

• US Dollar Index picks up bids to reverse the previous day’s pullback.
• Fears of supply disruptions in the US, hawkish Fed bets underpin bullish bias amid a light session.
• Easy inflation, stimulus hopes and inactive yields favor bears amid cautious optimism.
• US Retail Sales will be important to forecast next week’s FOMC action.

US Dollar Index (DXY) picks up bids to pare the previous day’s losses around 109.70 during Thursday’s Asian session. In doing so, the greenback’s gauge justifies the market’s cautious sentiment and a sluggish session while ignoring inactive yields.

That said, the DXY seems to cheer the hawkish Fed bets and fears surrounding supply-chain disruptions in the US, as well as the EU energy crisis, while recalling the buyers. It should be noted that the previous day’s softer US data appeared to have exerted downside pressure on the US Dollar Index.

News suggesting hardships for the US oil supplies in the Northeast, due to labor problems, Seems to challenge the market sentiment and underpin the US dollar’s safe-haven demand. "Some trains carrying fuel components to the U.S. Northeast have been halted in preparation for a possible railroad shutdown in the coming days, two sources familiar with the situation said on Wednesday," stated Reuters.

On the same line, the 75% chance of the Fed’s 75 basis points (bps) rate hike in the next week, as well as the 25% odds favoring the full 100 bps Fed rate lift, as per the CME’s FedWatch Tool, favor the DXY bulls.

Furthermore, US President Joe Biden’s rejection of US fears and China’s stimulus are some of the key developments that should have favored the risk appetite and weighed on the DXY. However, the Sino-American tussles and the energy crisis in Europe seemed to have challenged the optimism.

Talking about the data, US Producer Price Index (PPI) declined to 8.7% YoY in August from 9.8% in July, versus 8.8% market forecasts. Details suggest that the PPI ex Food & Energy, better known as Core PPI, also eased to 7.3% YoY from 7.6% but surpassed the market expectation of 7.1%.

Amid these plays, the S&P 500 Futures print mild gains around 3,670 whereas the US 10-year Treasury yields remain directionless near 3.416%.

Looking forward,  the US Retail Sales for August, expected to remain unchanged at 0.0%, will be important to watch for clear intraday directions. Also important will be the market bets on the Fed’s next moves. If the actual release appears more robust than expected, the DXY may witness further upside.

Technical analysis

A one-week-old descending resistance line near 109.90 precedes the 110.25 horizontal hurdle to restrict short-term DXY up-moves. Alternatively, the 50-day EMA surrounding 107.75 challenges the bears. The US Dollar Index is on the bull’s radar and ready to refresh the multi-year high.