Good day Hiveians!
Join me in analyzing the crypto markets!
The DXY and BTC are inversely correlated
Just these past few weeks I noticed this: whenever the DXY was down (there were many days with 30-50% drops), BTC was up often by 5%+ and vice versa. The reason for this inverse relationship is to me somewhat unclear, but I have also noticed that the DXY and DJI are inversely correlated.
Here is a chart showing this relationship (notice that for early 2021 the inverse relationship shifted more to a positive correlation)
From a TA perspective this opens up an interesting avenue: we can look at the macro trend for the DXY and use it as a predictive tool for BTC (and vice versa). As the correlation is not perfect this technique is far from reliable, but I think there is a clear signal that I want to talk about.
This signal corroborates with the macro correction in BTC that I have been talking about. To sum it up, I think BTC is heading for 20-30k in the next weeks/months and the peak of this bull cycle will be in 2022 (perhaps in summer/fall).
The DXY chart is very interesting as we can see a very clear 3 wave pattern. It is pretty much everywhere and hard to overlook. I have marked some of them in these ellipses (they occur on different scales).
As you can see I am expecting a third wave. In fact, we have such a strong signal from the past, that I am virtually certain that it will occur. The question is only how big will it be? I have marked two arrows at the right side which I think could mark the peak. One is a smaller peak in 2022 being rejected from the high in 2001, 2016 and 2020. The other one is a rejection at a trend line from even farther back. The bottom line here is that the Dollar index should move quite strongly upward. From a fundamental perspective this might seem strange as the FED is printing almost endless money which should weaken the Dollar. But TA is often quite reliable and I would certainly favor this scenario.
Such a movement would put selling pressure on Bitcoin. This would coincide very nicely with the outlined path I marked in the post I linked above as at around the beginning of 2022 Bitcoin should recover again and move into the late phase of the bull market. DXY on the other hand could peak here and move downwards again.
Again, this isn't exact science. In the first chart you could see that the chart was also positively correlated for most of 2021 so there is room for alternative price actions. However, I think there is a very possible scenario: an upward movement in DXY and a correction in BTC until the end of 2021. If this happens, there is further upward potential for the DXY, but I don't think this would lead to an even lower price in BTC.
As a general reminder: Please keep in mind that none of this is official investment advice! Crypto trading entails a great deal of risk; never spend money that you can't afford to lose!
Check out the Love The Clouds Community if you share the love for clouds!