If the dollar sinks, Bitcoin will recover, says FX analyst

bitcoin btc dollar dxy
image from medium.com

Kay Takeaways:

  • Forex analyst predicts a Bitcoin rally, if dollar index closes the week lower than the previous open point.
  • The dollar strength inversely correlates with the alpha crypto.
  • Bitcoin uptrend is not guaranteed.

YEREVAN (CoinChapter.com) – An internationally recognized Forex price action trader Justin Bennett predicted a bullish phase for Bitcoin (BTC) if the U.S. dollar index (DXY) closes the week below the last week’s starting point, i.e., at 95.6.

In detail, the dollar index, also known as the broad dollar, is a measure of strength for the dollar against the basket of world currencies:  the Euro, Swiss Franc, Japanese Yen, Canadian dollar, British pound, and Swedish Krona.

DXY vs. BTC

Firstly, the analyst explained his outlook starting with the correlation between DXY and Bitcoin. Then, he posted a chart that shows an inverse correlation for the previous two years.

The inverse correlation between DXY nd BTC
The inverse correlation between DXY and BTC

In detail, once the greenback experiences problems, investors seek alternative ways to hedge their assets against the turbulent market. As a result, they often turn to risk assets, such as stocks, equities, and the cryptocurrency market, notably Bitcoin.

Also read: SEC gives a nay to Fidelity spot Bitcoin ETF amid ongoing BTC market decline.

Since the pandemic-induced difficulties in the fiat economy and growing inflation, Bitcoin secured its status as an inflation hedge. Thus, it developed an erratic inverse correlation with the dollar strength.

BTC experienced its most significant gains this cycle as the USD weakened. Bitcoin also started its sideways movement when the DXY bottomed and started to strengthen. So a weaker DXY likely means a stronger BTC.

said the analyst.

Weakening dollar

Mr. Bennett pointed out that the current week’s closing value would significantly affect DXY’s future trajectory. In detail, if the index sinks below 95.63 (last week’s open point), it could face a weekly bearish engulfing.

dollar, If the dollar sinks, Bitcoin will recover, says FX analyst

Invoking the inverse correlation, Bitcoin, and by extension, the crypto market could benefit from the weakening DXY.

Additionally, the analyst pointed out that the last time the situation occurred, Bitcoin started its 1,500% rally in early 2020. On a daily scale, the DXY declined 2.18% after peaking at 97.4 on Jan 28.

However, the downfall stalled at a support trendline, instrumental since May 2021.

Broad dollar seeks support from a significant trendline. Source: DXY on TradingView.com
Broad dollar seeks support from a significant trendline. Source: DXY on TradingView.com

Also read: Crypto market faces a threat from JPMorgan’s stronger dollar prediction.

Moreover, many experts, including JPMorgan analysts, forecasted a bullish continuation for the greenback, which could rain on the crypto parade.

Bitcoin picks up the pace

Bitcoin price action. Source: CoinMarketCap.com
Bitcoin price action. Source: CoinMarketCap.com

The previous week, the flagship cryptocurrency gained 3.62% against the plunging DXY. However, BTC still struggled to overcome a resistance trendline relevant for the previous three months. The subsequent few sessions will reveal if Bitcoin bulls can break the resistance and establish a strong upward momentum.

Bitcoin (BTC) daily chart. Source: BTCUSD on TradingView.com
Bitcoin (BTC) daily chart. Source: BTCUSD on TradingView.com

Additionally, crypto analytical platform Ecoinometrics revealed a monthly HODLing incentive among large and small BTC addresses (whales and little fish). However, the analysts pointed out that while the monthly results look satisfactory, the lower time frame shows a mismatch.

So it is the same problem as usual: hodlers are buying the dips, but that’s not enough to create momentum. Given the macro environment, I’d bet on more turbulent times ahead. Imho a great time to accumulate if you have a long-term investment horizon.

added Ecoinometrics.

Also read: Bitcoin whales take a pause after accumulating the highest BTC supply per whale.

The weakening DXY might provide the needed momentum for Bitcoin. However, some experts make the opposite prediction for the dollar in Q1. Furthermore, the upcoming sessions will show if Mr. Bennet’s forecast has merit or Bitcoin bears will take over.

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dollar, If the dollar sinks, Bitcoin will recover, says FX analyst

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