The Impact of the Strong US Dollar on Bitcoin
The recent surge in the US Dollar Index (DXY) has significant implications for Bitcoin and the wider cryptocurrency sector. The DXY, which measures the performance of the US dollar against six major currencies, has reached its highest level since March, surpassing the 104.000 mark and hitting a five-month peak at 104.907. Currently, the DXY is trading at 104.773.
From a technical perspective, the DXY has displayed a bullish bias, particularly after surpassing the 200-day Moving Average (DMA) last week. To solidify its bullish stance, the DXY needs to exceed the year-to-date (YTD) high of 105.882, which would then bring the 106.000 mark into focus. Surpassing this level could set the stage for further gains and potentially challenge the November 30 daily high of 107.195 and the March 2021 high of 107.993.
However, if the DXY were to dip below 104.538, it could trigger a correction, targeting the 200-DMA at $103.326. In the short term, while the DXY remains bullish, it must breach the 38.2% Fibonacci retracement level at $105.368.
Bitcoin’s Response to the Strengthening DXY
The inverse correlation between Bitcoin and the DXY has attracted attention in recent years. With the DXY’s recent surge, concerns are rising about potential downward pressure on Bitcoin and the crypto market in the short term. Some analysts believe that a further increase in the dollar could push Bitcoin towards the $23,500 level, especially considering the relatively low levels of open interest (OI) and volume for BTC.
Insights from Glassnode founders Yann Allemann and Jan Happel suggest a favorable mid-term outlook for Bitcoin, but uncertainty in the short term. They indicate a possible downside between $23,800 and $24,800 due to the bearish trend. However, they also note signs of a potential bottom, such as bullish divergence in the RSI and decreasing volatility. They advise waiting for a dip or buying the breakout, emphasizing that the mid-term risk/reward for BTC and crypto is favorable. They predict that Bitcoin will reach its bottom in mid-September when the DXY reaches its peak, setting the stage for a strong October.
As of now, BTC price remains stagnant below $27,800.
Hot Take:
The surge in the US Dollar Index (DXY) to its highest level since March could be a cause for concern for Bitcoin and the broader cryptocurrency market. While the DXY’s bullish stance presents the potential for further gains, it also raises the risk of downward pressure on Bitcoin. Analysts suggest that Bitcoin may face a decline towards $23,500 due to the rising dollar and low levels of market activity. However, there are indications of a potential bottom and a favorable mid-term outlook for Bitcoin and crypto. The timing of Bitcoin’s bottom coinciding with the peak of the DXY in mid-September sets the stage for an exciting October in the crypto market.
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