As far as I am aware the date heirarchy doesn't work with Direct Query. It doesn't on any of my direct query dashboards anyway.
An alternative would be to create a group based on the date field and add the date in Month bins for example. Just right click on the date field and click on new group.
I have clarified everything, in 'direct query' mode, date hierarchies are not active, and in our reports there was used only 'import' mode and not with direct queries, thanks to Daveed1973
This is a frustrating issue. An easy (but frustratingly should-be-unnecessary) workaround is to create a calculated field:
DateIShouldntHaveToCreateThisExtraColumn = 'QueryPowerBIIsntReadingRight'[DateFromQueryThatForNoReasonIsntWorking]
The new column should give you a heirarchy without a problem.
And, if you're like me, it'll make you mad every time you see the duplication.