Fears of a recession push the US Dollar Index towards 107.00, while investors focus on the Fed's minutes

During Tuesday's Asian session, the US Dollar Index (DXY) advances for a third consecutive day, gaining bids to 106.58. In doing so, the greenback's indicator reflects the market's rush for risk-free assets in response to economic concerns about the United States and China, as well as geopolitical concerns about Russia, China, and the Middle East. Notable is the fact that weaker US data and hawkish Fed comments amplify the market's hesitation and benefit DXY bulls.

In spite of this, the DXY bulls pay close attention to the dismal data from China and the United States, especially in light of the recession fears.

US NY Empire State Manufacturing Index for August decreased to 31.3 from 11.1 in July and market expectations of 8.5. In addition, the August NAHB homebuilder confidence index in the United States dropped to 49 from 55, its lowest level since the beginning of 2020.

Elsewhere, China's Retail Sales decelerated to 2.7% YoY in July, compared to 5.0% projected and 3.1% previously, while Industrial Production (IP) dipped to 3.8% in the same month, compared to 3.8% previously and 4.0% market expectations. In addition, the People's Bank of China (PBOC) startled the markets on Monday by slashing medium-term lending facility (MLF) rates by 10 basis points (bps) in an effort to repel bearish.

It should be noted that headlines indicating improved coronavirus conditions in China's financial hub Shanghai and the resumption of the trading of Russian bonds on Wall Street did not increase risk appetite. In addition, Wall Street Journal (WSJ) reports of a possible meeting between US Vice President Joe Biden and his Chinese counterpart Xi Jinping could boost the risk-on sentiment. In the same vein, President Xi of China suggested additional initiatives to revitalize the world's second-largest economy.

The United States, South Korea, and Japan participated in a missile warning and ballistic missile search and tracking exercise last week off the coast of Hawaii, the Pentagon announced on Monday. The United States and South Korea will conduct joint military exercises between August 22 and September 1. The geopolitical concerns impose an additional burden on market sentiment and drive the DXY higher.

US 10-year Treasury yields print a three-day downtrend around 2.775%, while S&P 500 Futures tumble intraday by at least 0.13 percent.

Moving on, today's secondary US housing and activity data should interest DXY speculators ahead of the FOMC Minutes release on Wednesday. If US data continue to deteriorate, the dollar's gauge could remain on the bear's radar screen.

A prolonged breach of the three-week-old resistance line, which is now support at 106.35, would lead DXY bulls to the monthly high above 107.00. However, the bulls require confirmation from late July's peak at 107.45 in order to approach July's yearly high near 109.