Bitcoin’s Inverse Correlation to US Dollar reaches 17-month highs

Bitcoin (BTC) has been moving in the opposite direction from the US dollar since the beginning of 2022 – and today that inverse relationship is more extreme than ever.

Bitcoin and the dollar are going in other directions

In particular, the weekly correlation coefficient between BTC and the dollar fell to 0.77 below zero in the week ending July 3, the lowest level in seventeen months.

Meanwhile, the correlation between bitcoin and the Nasdaq Composite, a tech-heavy index, hit 0.78 above zero in the same week, according to data from TradingView.

This is mainly due to the performance of these markets since the beginning of the year in the context of fears of recession, due to increases in the Federal Reserve benchmark rate to curb the rise in inflation. Bitcoin, for example, lost more than 60% of its value in 2022, while Nasdaq returns over the same period by about minus 29.72%.

On the other hand, the USD has outperformed its U.S. Dollar Index (DXY) – a metric that measures its strength against a basket of blue chip foreign currencies – hovering around its January 2003 highs of 105, 78.

Will the dollar rise further?

The Fed sees it forced to raise benchmark rates based on how traders traded prices on derivative contracts ahead of time.

In particular, traders expect the Fed to raise rates by 75 basis points (bps) in July. They have also pledged that the rate will not rise above 3.3% by the end of the year, currently in the range of 1.25% -1.5%.

However, an increase to 3.4% percent in the first quarter of 2023 could cause the central bank to reduce its aggressive tightening.

This could translate into a 50 basis point cutback by the end of next year, as shown in the chart below.

Changes in the feed interest rate target. Source: Trade View

An early rate cut could occur if inflation data cools, which would limit investors’ appetite for the dollar, according to Wall Street analysts voted by JPMorgan. In particular, almost 40% believe that the 2022 dollar will end at its current price level – around 105.

At the same time, 36% have pledged that the greenback will correct before the end of the year.

“The foreign exchange market is not a linear world. At some point, things change, ”said Ugo Lancioni, head of international currencies at Neuberger Berman. He added:

“I personally have a penchant for shorting the dollar at one point.”

Will the bitcoin bottom out in 2022?

In addition, a classic technical settlement could prevent the dollar from continuing its rally for the rest of 2022.

Saw For the first time by independent market analysts Agres, DXY’s double top pattern has been confirmed in part by its two consecutive tops and a common support level of 103.81.

According to the rule of technical analysis, the double top pattern could be resolved when the price breaks below the support and falls as much as the maximum height of the structure, as shown in the chart below.

As a result, DXY’s double top profit target comes in near 101.8, down more than 3.25% from the July 3 price.

“The dollar is overpriced and overheated,” Agres explained, adding that its correction in the coming sessions could benefit stocks and cryptocurrencies:

“Finally, it looks like the DXY is about to crash. A perfect combination for a fallen case. When [le] The dollar goes down, stocks and cryptocurrencies go up. ”

Read also: Bitcoin Trader Says Expect More BTC Price Changes This Summer

Meanwhile, bitcoin’s “MVRV-Z Score” also fell in a range that was historically prior to the strong long-term rise. This indicator on a chain predicts that bitcoin could bottom around $ 15,600 in 2022.

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