Dollar traders have been paying close attention to the potential bullish “reverse head and shoulders” pattern in the dollar index (DXY) chart. At the same time, the smell of a stronger U.S. dollar is weakening Bitcoin’s (Bitcoin) Upside, especially when the flagship cryptocurrency struggles to break its current trading range of $30,000-35,000.
Three low and one limit price
Specifically, an inverse head and shoulders (IH&S) pattern is formed after a downtrend. It contains three consecutive grooves, the middle groove (head) is the deepest than the other two (shoulders). Ideally, the height and width of the two shoulders are equal. All three troughs are hung near a price ceiling, which is known as the neckline of resistance.
DXY measures the strength of the U.S. dollar against a basket of major foreign currencies, and currently checks all boxes to prove that it has formed an IH&S model.
The index now focuses on the prospect of a bullish breakout when it closes above the neckline resistance. In doing so, it will set a technical profit target at a distance equal to the price gap between the neckline and the bottom of the head.
The bullish setup expects DXY to rise by nearly 5% due to a potential neckline breakout movement.
At the same time, the 50-day simple moving average (50-day SMA; blue wave) of the index is also expected to cross its 200-day simple moving average (20-day SMA; saffron wave) to confirm the golden cross. Traders see the golden cross as a bullish indicator.
Driven by the Federal Reserve, the weak US dollar environment after March 2020 provides favorable conditions for risky assets and global economic growth Quantitative easing policy To cushion the economic consequences of the coronavirus pandemic. DXY closed in 2020 with a decline of 6.83%.
But entering 2021, as the U.S. economy rebounds strongly under the rapid coronavirus vaccination plan, the U.S. dollar is showing signs of a trend reversal. As the market reopened, global investor demand for U.S. dollars and U.S. dollar-based investments rose.
Brent Johnson, CEO of Santiago Capital, called the U.S. dollar “Giffen is good“An asset whose demand rises with price. He pointed out that although the Fed’s printing of money has caused inflation to rise, global investors have increased U.S. dollar debt. Add to:
“This kind of continuous issuance of debt denominated in U.S. dollars increases future demand for U.S. dollars (debt must be repaid in U.S. dollars). As mentioned above, this demand will not diminish as prices increase.”
Kevin Kelly, chief financial analyst at Delphi Digital, said that DXY’s net speculative futures position is not as pessimistic as it was in early 2021. He added that this setup is very similar to DXY’s position at the beginning of 2018, followed by a roughly 10% price increase over the next 18 months.
The recent rise in the DXY market has been accompanied by three back-to-back monthly surges of inflation.According to the latest data released by the Department of Labor this Tuesday, the U.S. Consumer Price Index 5.4% year-on-year increase, Which is the highest 12-month interest rate since August 2008.
James Freeman, Assistant Editor, The Wall Street Journal blame The Federal Reserve implemented a money printing policy in response to continued inflationary pressures and pointed out that the dollar in each wallet has been actively depreciating as a result. Nevertheless, the Fed has ensured that inflation is a temporary problem, providing bullish support for the rise of the US dollar index.
In congressional testimony on Wednesday, Federal Reserve Chairman Jerome Powell Accepted Current economic conditions do not allow them to scale back their quantitative easing plans, including a monthly bond purchase plan of US$120 billion. However, Powell added that if the market decides to reduce the scale of purchases, the Fed will remind the market in advance.
Coupled with lower interest rates, the Fed’s expansionary policies have stimulated cheaper loans, creating more demand for assets, including housing, technology stocks, gold, and even Bitcoin. But at the same time, concerns that rising inflation will prompt the central bank to cut interest rates also force seemingly overvalued assets to lose part of their full-year earnings.
For example, Bitcoin, which is often advertised as a hedge against higher inflation, has fallen by more than 50% from its historical high of approximately $65,000.Its plummet mainly appeared in Global regulatory crackdown, China’s mining outflow, and other factors. But the Federal Open Market Committee’s decision in mid-June to cut interest rates in 2023 may also increase its downward momentum.
“If the U.S. dollar reverses its trend, it may pour cold water on some of the most popular deals this year,” Kelly pointed out.
“Commodities, gold, emerging market stocks, and Bitcoin are all vulnerable to a stronger U.S. dollar, but the speed of their movement is still a key factor.”
Nonetheless, some analysts believe that the rise in the U.S. dollar poses no threat to Bitcoin and believe that investors will continue to allocate a portion of their portfolio to emerging global assets.
For example, Cathie Wood, founder and CEO of ARK Invest, Tell CNBC After overcoming concerns related to the recent Chinese cryptocurrency mining ban and its amazing carbon footprint, Bitcoin may finally gain a foothold, a question raised by Tesla CEO Elon Musk in May.
Mutual trust Polls CFOs of global hedge funds also found that by 2026, they will significantly increase their exposure to cryptocurrencies. 17% of respondents expect to allocate more than 10% of funds in Bitcoin and similar digital assets.
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