US Dollar Index struggles to justify Fed tapering chatters below 93.00, focus on inflation

• DXY keeps the pullback from monthly high, grinds lower of late.
• US data, Inflation expectations and Fed’s Harker favor bulls.
• Pre-CPI anxiety weighs on the Treasury yields, greenback.

US Dollar Index (DXY) remains on the back foot around 92.60 during early Tuesday. The greenback gauge jumped to the highest since August 27 the previous day before reversing from 92.88, which in turn portrayed a bearish candlestick formation ahead of the key US data, namely the Consumer Price Index (CPI) for August.

The indecision following Fed Chair Jerome Powell’s Jackson Hole speech recently faded after the US data, mainly relating to the second-tier employment releases and Producer Price Index (PPI) came in positive. Even so, the monthly jobs report was sluggish and challenges the Fed hawks.

However, Philadelphia Federal Reserve Bank President Patrick Harker refrained from signaling what will the US central bank do in the next week but pushed for sooner tapering and underpinned the US dollar buying on the week’s start.

On the contrary, recently easing US-China tussles and Iran’s readiness to surrender investigation rights at the nuclear facility reduce the greenback's safe-haven demand and challenged DXY bulls afterward. On the same line were stimulus and vaccine optimism, as well as cautious mood amid a light calendar and before the key data.

Against this backdrop, The US 10-year Treasury yields dropped 1.5 basis points to 1.32% on Monday, up to one basis point by the press time near 1.33%. Further, the Wall Street benchmarked closed mixed but the S&P 500 Futures print mild gains by the press time.

Moving on, DXY bulls seek confirmation of the Fed’s tapering talks ahead of the next week’s Federal Open Market Committee (FOMC). Hence, firmer inflation data will be eyed to recall the greenback bulls.

Read: US Inflation Preview: CPI critical for taper, three scenarios for the dollar

Technical analysis

Monday’s gravestone Doji bearish candlestick formation at monthly high challenges the DXY until the quote stays below 92.88.

Also challenging the short-term greenback bulls is the 20-DMA level surrounding 92.73.

On the contrary, an ascending trend line from June 23, near 92.10 becomes strong support to watch during the greenback gauge’s further downside.

DXY: Daily chart

Trend: Further weakness expected