In a pivotal development for financial markets, the US Dollar Index (DXY) has surged to its highest level since March, marking a pivotal moment for Bitcoin and the entire crypto sector. The DXY, which measures the performance of the greenback against a basket of six major currencies, extended gains above the 104,000 level over the past four days to hit a five-month high of 104,907. At press time, the DXY was 104.773.
From a technical perspective, the DXY was showing a bullish bias, especially after it broke above the 200-day moving average (DMA) on Thursday of last week. For DXY to solidify its bullish stance, it needs to surpass the year to date (YTD) high of 105.882, which would then bring the 106.000 level into focus. A breach of this level could set the stage for DXY to challenge 107.195 30th November daily high and possibly rally towards 107.993 21st March high.
On the other hand, if the DXY falls below 104.538, it could trigger a correction targeting the 200-DMA (currently at $103.326). In the short-term, DXY remains bullish but needs to break the 38.2% Fibonacci retracement level at $105.368.
DXY maintains bullish bias, 1-day chart | Source: DXY on TradingView.com
DXY maintains bullish bias, 1-day chart | Source: DXY on TradingView.comCommenting on the development of DXY, renowned macro analyst Henrik Zeberg predicted that DXY bulls should not get too excited: “I just love this BEARISH – bullish move in DXY.” Let DXY Bulls be overly excited! Exactly what is needed for the inversion. 106.0 – 106.3 (is the key).”
How Will Bitcoin Respond to DXY Strength?
The inverse correlation between Bitcoin and the DXY has been an interesting topic over the last few years. With the recent rise in the DXY, concerns about potential near-term downside pressure on Bitcoin and cryptocurrencies are increasing. Some analysts believe that further appreciation in the dollar could propel Bitcoin towards $23,500, especially given the relatively low open interest (OI) and volume for BTC.
Glassnode founders Yann Allemann and Jan Happel provided insights into Bitcoin’s prospects, noting, “Med-term outlook: Favorable risk-reward trade-off but uncertain near-term ($25.8K – $26.8K).” Possible downside ( $23.8K – $24.8K) due to the downtrend. Signs of bottoming: bullish RSI divergence, easing volatility. […] We are almost at rock bottom but the environment is still unstable.”
Discussing the current market conditions, they added: “We are in an unstable environment. Wait for the pullback or buy the breakout. Bitcoin risk signal near extreme. $25.8k to $26.8k is no man’s land. The medium-term risk-reward tradeoff is favorable for BTC and crypto.” Additionally, they predict that Bitcoin will bottom in mid-September when the DXY tops out, giving Bitcoin and cryptocurrencies a stellar October.
At press time, BTC price has been stagnant below $27,800.
BTC stagnates below $27,800 | Source: BTCUSD on TradingView.com
Selected image from iStock, chart from TradingView.com
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