Analysts Fear a Strong US Dollar Will Dampen Bitcoin’s Bullish Momentum

Analysts Fear a Strong US Dollar Will Dampen Bitcoin’s Bullish Momentum

On Aug 21, (BTC) price declined by more than 3% from around $11,880 to $11,511 on Coinbase. Coincidentally, the U.S. Dollar Index (DXY) started to rebound from its 4-month downturn.

As the dollar increased by 1.3% from $92.28 to $93.20, Bitcoin, major cryptocurrencies, and gold fell in tandem. The seemingly inverse correlation between the dollar and Bitcoin might indicate that the weakening dollar partially catalyzed BTC’s recent rally.

Since the major Black Thursday Bitcoin correction, analysts have attributed the current BTC rally to the fading dollar.

Contrarily, when the dollar reverses and begins to rally, the chances of a Bitcoin consolidation phase could rise.

In the last 48 hours, as the US Dollar Index climbed, the price of gold also slumped by more than 3.5%. Gold had been rallying strongly in recent weeks, buoyed by the rising uncertainty around the global economy.

READ  Jack Dorsey still thinks Bitcoin is the strongest contender for an internet-native currency

The US Dollar Index shows signs of a recovery. Source: TradingView.com

As such, Scott Melker, a trader, said that the inverse relationship between Bitcoin and the dollar is more compelling than its recent correlation with the stock market. He noted:

The dollar has underperformed against major reserve currencies like the Japanese yen since April and analysts anticipate that if it can sustain its strong momentum gold and the U.S. dollar will be negatively impacted.

According to Michael Hewson, CMC Markets UK’s chief market analyst, the dollar’s recovery is causing gold’s uptrend to weaken. Hewson said:

Data from Skew also shows that Bitcoin and gold have seen a newfound correlation in recent weeks. If the prices of BTC and the precious metal continue to move in tandem, the likelihood of the strengthening dollar causing a BTC pullback rises.

READ  Bitcoin trader sees 6 bullish signs for BTC after Fed non-event

Karl Schamotta, Cambridge Global Payments’ chief market strategist, said the dollar could be seeing a short squeeze. He explained:

“You’re seeing a bit of an unwind in the short dollar trade that had gained so much momentum in the last couple months.”

The confluence of a dollar short squeeze, the upcoming stimulus deal, and rising economic certainty are contributing to the rebound of the dollar but will this be a short-lived or longer term trend.

Leave a Reply

Your email address will not be published. Required fields are marked *

Want to automate your crypto Trading?
Try this new trading Robot!

Your information will be validated and you will be automatically redirected to the trading robot advanced dashboard.