Bitcoin’s inverse correlation with US greenback hits 17-month highs — what’s subsequent for BTC?

Bitcoin (BTC) has been transferring in the other way of the US greenback for the reason that starting of 2022 — and now that inverse relationship is extra excessive than ever.

Bitcoin and the greenback go in reverse methods

Notably, the weekly correlation coefficient between BTC and USD dropped to 0.77 beneath zero within the week ending July 3, its lowest in seventeen months.

In the meantime, Bitcoin’s correlation with the tech-heavy Nasdaq Composite reached 0.78 above zero in the identical weekly session, knowledge from TradingView exhibits.

BTC/USD and U.S. greenback correlation coefficient. Supply: TradingView

That’s primarily due to these markets’ year-to-date performances amid the fears of recession, led by the Federal Reserve’s benchmark rate hikes to curb rising inflation. Bitcoin, for example, has lost over 60% in 2022, while Nasdaq’s returns in the same period stand around minus 29.72%.

On the other hand, USD has excelled, with its U.S. dollar index (DXY) — a metric that measures its strength against a basket of top foreign currencies — hovering around its January 2003 highs of 105.78.

BTC/USD vs. DXY vs. NDAQ weekly price chart. Source: TradingView

Will dollar rise further?

The Fed appears compelled to increase benchmark rates based on how traders have priced the front-end derivative contracts.

Notably, traders anticipate the Fed to raise the rates by 75 basis points (bps) in July. They also bet Fed won’t raise rates beyond 3.3% by this year’s end from the current 1.25%-1.5% range.

However, a push to 3.4% by the first quarter of 2023 could have the central bank dial back its aggressive tightening.

That could result in a 50 basis point cut by the end of next year, as shown in the chart below.

Changes in Fed’s interest rate target. Source: TradingView

An early rate cut could happen if the inflation data cools down, thus limiting investors’ appetite for the dollar, according to Wall Street analysts surveyed by JPMorgan. Notably, around 40% see the dollar ending 2022 at its current price levels — around 105.

Meanwhile, another 36% bet that the greenback would correct ahead of the year’s close.

“Foreign exchange is not a linear world. At some point, things flip,” noted Ugo Lancioni, head of global currency at Neuberger Berman, adding:

“I personally have a bias to short the dollar at some point.”

Bitcoin to bottom out in 2022?

In addition, the dollar’s ability to continue its rally for the rest of 2022 could be hampered by a classic technical pattern.

First spotted by impartial market analyst Agres, the DXY’s double prime sample is partially confirmed resulting from its two consecutive highs and a typical help degree of 103.81.

As a rule of technical evaluation, the double prime sample may resolve when the worth breaks beneath the help and falls by as a lot because the construction’s most peak, as proven within the chart beneath.

DXY day by day worth chart. Supply: TradingView

Because of this, DXY’s double prime revenue goal involves be close to 101.8, down over 3.25% from the worth of July 3.

“The greenback is extraordinarily overbought and overheated,” defined Agres, including that its correction within the coming periods may benefit shares and cryptocurrencies:

“Lastly, wanting prefer it [DXY] will topple down arduous. In good confluence for a melt-up situation. When [the] greenback goes down, shares and crypto rally.”

Associated: Bitcoin dealer says anticipate extra chop, draw back, then sideways worth motion for BTC this summer time

In the meantime, Bitcoin’s “MVRV-Z Rating” has also fallen into a range that has historically preceded sharp, long-term upside retracement. This on-chain indicator predicts that Bitcoin could bottom at around $15,600 in 2022.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Every investment and trading move involves risk, you should conduct your own research when making a decision.