- The U.S.Dollar Index is breaking out of a 10-month wedge that could stifle any short-term recovery
- A strong U.S.Dollar Index typically results in a weak Bitcoin
- If Bitcoin closes below $33,000 then lower levels could finally come into play
The U.S.Dollar Index (DXY) is threatening to break out of a 10-month wedge that could spell disaster for Bitcoin’s attempts to hold the $30,000 range. The DXY has been coiling inside the wedge ever since September last year and is now showing the kind of momentum needed to push it up and out, which will likely see Bitcon and other such investments like gold and silver abandoned by big players in favor of a temporary return to the dollar.
U.S. Dollar Index on the Verge of a Breakout
We covered the situation with the U.S.Dollar Index two weeks ago after it enjoyed a quickfire jump from 90 to 92.5. It has since created a series of higher highs as it looked to break the resistance line of the wedge, which it has now done:
If it can break this resistance line and use it as support then dollar holders can look forward to reclaiming the losses that have endured since the coronavirus hit:
Bitcoin Stagnation Likely
The big question of course is what does this all mean for Bitcoin? Just because the U.S.Dollar Index is rising it doesn’t mean that Bitcoin has to collapse or stagnate, but there is an uncanny relationship between the two – every Bitcoin bull run has occurred during a downturn in the fortunes of the dollar while the resultant bear market has occurred with a strong U.S.Dollar Index.
Bitcoin continues to operate within a clear band, with the $30,000 level the key to maintaining a bullish sentiment for the mid term:
With volume tailing off and interest moving back to the U.S. Dollar Index we could see Bitcoin drift lower towards that key $30,000 area. Given that Bitcoin was set for a fairly boring summer anyway while it accumulates following January’s high, the best development all round would be a quickfire run on the U.S. Dollar Index over the next three months to get that out of the way, leaving Bitcoin to do its usual trick of an end-of-year rally to $100,000.
Well, we can dream can’t we?
