Cryptocurrency investors dealing with the repercussions of banking problems and failed crypto companies may now have another challenge to face – the recovering US Dollar.
American currency on the up
The US Dollar Index (DXY), which tracks the dollar’s performance against a basket of major foreign currencies, has risen 4% from its February 3rd low of 100.82, as market participants expect the Federal Reserve to contain inflation by increasing benchmark rates.
Inflation still persists
Although there is no need to panic yet as no recession has been registered, the latest American data shows that jobless claims have dropped 2,000 to a seasonally adjusted 199,000 in the week ending February 25th. This follows strong consumer spending in January.
In addition, a Bloomberg survey of 91% of US manufacturing companies found that they are complaining of rising input prices in spite of the improvement of supply chain issues.
The issue isn’t as severe as it was during the pandemic, but the survey results still indicate persistent inflation pressures, despite the Fed’s forceful rate hikes.
“Recent data suggests that consumer spending isn’t slowing as much as expected, the labor market is staying strong, and inflation is not going down as quickly as I had predicted,” said Federal Governor Christopher Waller, going on to say:
“If the numbers continue to be too high, the policy target range will have to be raised this year even further.”
Bank of America Global Research believes the Fed will raise interest rates to almost 6% from the present 4.5-4.75% range. This could potentially renew investor demand for the dollar, putting a damper on ‘riskier’ assets like Bitcoin.
DXY chart forming an inverse head and shoulders
From a technical standpoint, the US Dollar Index appears to be in the process of forming a bullish reversal pattern, which suggests that a market rally could be imminent.
The inverse head and shoulders pattern on the DXY chart suggests that a breakout of this formation in the near future could send the index higher. However, this is only likely to happen if the US Federal Reserve does not increase the benchmark rate further.
A recent surge in the US Dollar could put a dampener on Bitcoin’s attempts to break through the $25,000 ceiling. Over the past few weeks, the Dollar Index (DXY) has seen an increase of more than 4.5%.
Analysts have identified an inverse-head-and-shoulders pattern, which forms when the price creates three troughs below a common resistance line. The middle trough is deeper than the other two, and the pattern is resolved when the price breaks the resistance and increases by the maximum height between the lowest level and the resistance.
If the DXY breaches the 105.25 neckline, then the US Dollar could be on course for a further increase to 109.75 by the end of the year. This could put a stop to Bitcoin’s ambition to break the $25,000 barrier.
It appears that macroeconomic headwinds and fears about the potential repercussions of Silvergate have caused Bitcoin’s price to tumble by around 13% in recent days.
Despite this, Bitcoin continues to maintain its bullish outlook in the short term, staying above the 50-day and 200-day exponential moving averages. However, if the DXY continues its upward momentum and other negative news emerges, the price of BTC could test its $20,000 support level.
It is important to note that this article is not offering any financial advice. Investors should always do their own research before making any decisions.
