The correlation between Bitcoin and the dollar reached the lowest level in the last 17 months; What is the next move?

Some experts have predicted that the growth of the dollar will stop or be corrected by the end of 2022. As a result, given the inverse relationship between the dollar and bitcoin, they hope that as the value of the dollar declines in global markets, digital currencies can recover their price.

To Report Cointelegraph, Bitcoin has moved in the opposite direction to the dollar since the beginning of 2022, and now the opposite relationship between the two is higher than ever.

It should be noted that the weekly correlation coefficient between Bitcoin and the dollar in the week ending July 3 (July 12) reached minus 77%, which is the lowest rate in the last 17 months.

In addition, the correlation between Bitcoin and the Nasdaq index has reached a positive 78% during this period.

These conditions are mainly due to the poor performance of the global stock market and digital currencies since the beginning of 2022 and traders’ fear of recession. The fear of traders has also arisen due to the decision of the Federal Reserve to increase the bank interest rate in the United States in order to curb inflation in this country. It should be noted that in 2022, Bitcoin has fallen by more than 60% and the Nasdaq index has fallen by 29.72%.

On the other hand, the US Dollar Index (DXY), which measures the dollar’s strength against a basket of the world’s top fiat currencies, has performed very well. The US dollar index is currently fluctuating around 105.78, which is its peak since January 2003.

Will the dollar rise again?

The Fed appears to be forced to raise interest rates based on the pricing of derivatives contracts among traders.

Traders have predicted that the Federal Reserve will raise interest rates again by 0.75 percentage points in July. They think that the Federal Reserve will not increase the interest rate to more than 3.3% by the end of this year. American interest rates are currently in the range of 1.5 and 1.75 percent.

However, if the US interest rate reaches 3.4 by the first quarter of 2023, the country’s central bank may abandon its contractionary policies.

As you can see in the chart below, this may eventually lead to a 0.50 percentage point reduction in bank interest rates by the end of next year.

According to Wall Street analysts in a JPMorgan survey, if US inflation decreases, the interest rate in this country will likely decrease sooner and investors will be less willing to buy dollars. It should be noted that about 40% of these people believe that the dollar index will remain at its current level of 105 until the end of 2022.

However, another 36% said the US dollar index will correct and decline before the end of 2022.

Ugo Lancioni, one of the senior managers of Neuberger Berman Investment Institute, said:

The currency exchange space is not linear and uniform. Personally, I think the dollar will eventually begin to decline at some point.

Will Bitcoin reach its price floor in 2022?

From the perspective of technical analysis, a classic pattern may prevent the continuation of the upward trend of the dollar until the end of 2022.

This issue was first raised by an analyst named Agres. According to him, the formation of the twin ceiling pattern (two peaks) on the chart of the US dollar index has been confirmed to some extent due to two consecutive peaks and common support of 103.81.

According to the rules of technical analysis, in the twin ceiling pattern, the price falls below this support and falls to the maximum height between the peaks and the support. This is shown in the diagram below.

As a result, the target of the mentioned pattern will be close to 101.8, which is more than 3.25% lower than its value on July 3 (July 12).

Referring to the fact that the correction of the dollar index can benefit digital currencies and the stock market, Eggers said:

The dollar is overbought and overbought. Finally, it seems that [شاخص دلار آمریکا] will fall hard; [چراکه] The simultaneity of these factors is completely consistent with the scenario of the formation of emotional development. When the dollar falls, stocks and cryptocurrencies will rise.

At the same time, Bitcoin’s MVRV-Z Score on-chain index, which we recently covered in an article, is in the range that it always enters before strong and long-term bullish corrections. This on-chain indicator predicts that the price floor of Bitcoin will be formed in 2022 in the range of $15,600.