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Nexo

Timing A Dollar (DXY) Trend Reversal And Its Impact On Bitcoin

Tony Spilotro by Tony Spilotro
1 month ago
in Bitcoin
0

The DXY Dollar Currency Index is above the 100 level for the first time since the pandemic struck and lax monetary policy sent Bitcoin — and inflation rates — soaring. 

When or will the trend weaken, and what might continued strength or sudden reversal mean for Bitcoin and the rest of crypto?

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Fed Rate Hike Expectations Push DXY To Two-Year High

Global markets have taken a beating following the US Fed announcing a series of rate hikes in a response aimed at curbing the highest inflation rate in more than 40 years. 

Fed Governor Lael Brainard this week claimed a series of rate hikes and aggressive balance sheet runoff would help to quickly correct monetary policy imbalance and take the Fed to more neutral levels. The comments pushed the DXY Dollar Currency Index to a two-year high. 

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The dollar strengthens when rate hikes are expected. The DXY is a basket of currencies trading against the dollar. Weakness in currencies like the yen have contributed further to DXY dominance. 

Because Bitcoin trades inversely to the dollar, the ongoing rally in the DXY has also resulted in lower cryptocurrency valuations across the board. However, some relief could be due before the month is over. 

DXY_2022-04-14_19-37-47

The TD9 sell setup has bee perfected on the monthly | Source: DXY on TradingView.com

The Dollar’s End And The Trend’s Impact On Bitcoin

According to the TD Sequential indicator created by market timing wizard Thomas Demark, the DXY monthly has perfected a series sell setup with a 9-count. After a specific sequence of candles reaches a 9-count, the indicator points out potential reversals in the making. 

A reversal at current levels would allow Bitcoin to continue its bull run. But trending assets can ignore a perfected TD9 setup. Breaking beyond the current resistance level here for the DXY could also send Bitcoin plummeting below support. 

Opposing bear and bull divs appear on the DXY (left) and Bitcoin (right) | Source: BTCUSD on TradingView.com via Moe_Mentum

Much like Bitcoin’s trend took a pause for some consolidation, even a trending DXY must slow down eventually. If that time isn’t now with the TD sell setup, what else might cool down the greenback?

Two of the hottest topics at the recent Bitcoin conference were inflation, and the petrodollar’s dominance globally. If inflation in the US reduces the buying power of US dollars, then so does any capital parked in USD during the rate increase-related downtrend in assets over the last several months. 

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The dollar’s global reserve status is also at very real risk. Among the many systems designed to keep the dollar in power is tied to oil trade. The petrodollar system means countries abroad must keep a supply of dollars on hand to trade oil in the global reserve currency. Oil-producing countries, however, are for the first time considering doing business in rubles or yuan to reduce dollar dominance around the globe. 

Will the DXY make it though resistance and send Bitcoin to a capitulation low, or will this TD9 sell setup potentially signal the end of the dollar’s reign?

Follow @TonySpilotroBTC on Twitter or join the TonyTradesBTC Telegram for exclusive daily market insights and technical analysis education. Please note: Content is educational and should not be considered investment advice.

Featured image from iStockPhoto, Charts from TradingView.com
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Tony Spilotro

Tony Spilotro

I'm Tony Spilotro. Behind the pseudonym, I'm a digital media executive and global remote work leader with a decade of content experience and excellence. Here, I explore my newfound passions pertaining to privacy, finance, economics, politics, cryptography, property rights, and other libertarian-esque views. I am a Bitcoin evangelist, maximalist, and educator whenever I can be, helping to spread its message of freedom from government control, monetary policy mismanagement, and passing the buck - literally – to future generations. My journey from a curious retail crypto investor to a serious Bitcoin advocate, trader, and technical analyst is an unusual one, but life-changing nonetheless and has become less about money and more about a long-overdue revolution. While a firm believer in the laws governing math and science, I am profoundly fascinated by the impact of astrology and astronomy including moon and solar cycles and planetary alignment and their ability to influence and potentially predict markets. It hasn't yet clicked for me as to how to put anything to use, but I consider it my current rabbit hole I can't yet dig out of. My perspective of growing up alongside the internet, the dot com era, the Great Recession, and roots in video games collecting coins and rare items caused Bitcoin to immediately make sense to me. Through all of these lenses, I seek to produce content that is educational and entertaining, and I thank you sincerely for taking the time to read what I have to say. Please follow me on Twitter and feel free to drop me a line if you would like to work together.

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