US dollar traders hitting the bid, 109.80 is key support

• The US dollar has been pressured in Asia ahead of the Tokyo open. 
• Bears need to break below 4-hour support at around 109.80 with a firm bearish close. 

The US dollar has since been faded from the highs which gave some relief to the forex space. At the time of writing, DXY is trading at 109.789. It's early days on Tuesday following holiday-thin markets and the US dollar has run into a cohort of bears hitting the bid which is taking the DXY down below 109.80.

The greenback hit a 20-year high against a basket of peers at the start of the week with the euro under pressure due to Russia halting gas supply down its main pipeline to Europe. The news has dented risk appetite in markets and sparked concerns over energy prices and growth, taking the single currency, which is a major component of the DXY index, down to blow 0.9880 this week so far.

Additionally,  a drop in the Chinese yuan that struggles in the face of a resurgence of COVID-19 infections across the country as propped up the US dollar. However, Monday's fixing was 155 pips firmer than the Reuters estimate of 6.9153, marking the ninth straight trading day that the PBOC set firmer-than-expected official guidance in what is presumed to be an effort to rein in excess yuan weakness. The latest concerns stem from fresh lockdowns for China's southern tech hub of Shenzhen that started on Monday, the same time that the southwestern metropolis of Chengdu announced an extension of lockdown-related curbs.

Besides the European and China-induced risk-off pulses, the greenback continued to be driven higher on the coattails of Fed Chair Jerome Powell's recent remarks made at the Jackson Hole symposium in Wyoming, explaining that rates would need to be high "for some time" to combat stubbornly high inflation.

Markets will be looking to the US August ISM services PMI Tuesday and all ears to the ground for Fed speakers. The Services data's headline is expected at 55.4 vs. 56.7 in July. Traders will be taking note of the employment and prices paid data, which stood at 49.1 and 72.3 in July, respectively. 

Fed speakers will also be key. Chair Powell, Vice-Chair Brainard, and Governor Waller will make public appearances to talk about the economic outlook and markets will be looking for them to build on Powell's Jackson Hole remarks.

''They will stress that inflation is still too high and bringing it down is priority number 1, which requires further rate hikes as well as keeping the policy rate high for "some time" once the terminal is reached,'' analysts at TD Securities said.

DXY technical analysis

The price is running into resistance but the bears need to get below the 4-hour support around the current levels if there are going to be prospects of a deeper correction for the sessions ahead. A break here opens risk towards 108.50 and then a 38.25 Fibonacci retracement below there near 108.10. The neckline of the harmonic pattern is located all the way down at 106.93.