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Dollar’s sharp recovery puts Bitcoin’s $25K breakout prospects at risk

March 3, 2023No Comments

bitcoin (BTC) investors reeling from the impact of recent cryptocurrency company bankruptcies and banking problems may face another potential problem: the recovery of the US dollar.

US dollar strength resurfaces

In particular, the US dollar index (DXY), which tracks the dollar's performance against a basket of major foreign currencies, is up 4% from its February 3 low of 100.82, amid expectations that the Federal Reserve will continue raise benchmark rates to cool inflation.

inflation persists

An air of caution is maintained as new US data shows a recession is not yet imminent.

That includes the latest jobless claims, which fell 2,000 to a seasonally adjusted 190,000 in the week ending February 25, and higher consumer spending in January.

Meanwhile, 90% of US manufacturers surveyed by Bloomberg complained about rising input prices despite declining supply chain issues.

ISM manufacturing prices paid. Source: Bloomberg

While the problem is not as severe as it was during the pandemic, the survey shows that inflationary pressure has not gone away despite the Fed's decision. aggressive rate hikes.

"Recent data suggests that consumer spending is not slowing as much, that the labor market continues to perform unsustainably, and that inflation is not coming down as fast as thought," Fed Governor Christopher Waller said. added:

"If those data reports continue to be too hot, the policy target range will have to be raised further this year."

Bank of America Global Research anticipates the Fed to raise the interest rate to almost 6% from the current range of 4.5-4.75%. Theoretically, it should renew investor demand for dollars by putting downward pressure on “riskier” assets like Bitcoin.

The DXY chart paints inverse head and shoulders

From a technical perspective, the US Dollar Index looks set to rally more than 4.5% in the coming months due to the formation of a classic bullish reversal pattern.

Called the inverse head and shoulders (IH&S), the pattern develops when price forms three troughs below a common resistance line (neckline), with the central trough (head) deeper than the other two (left and left shoulders). right).

DXY daily price chart. Source: TradingView

An IH&S pattern resolves after price breaks above the neckline and rises by as much as the maximum height between the low of the pattern and the neckline.

If the dollar index successfully breaks above its neckline of 105.25, the probability of an extended recovery towards 109.75 in 2023 will be greater.

Bitcoin price to retest $20K?

The strongest outlook for the dollar comes as Bitcoin bulls fail to sustain the price rally by breaking the $25,000 technical resistance level. The BTC price has fallen by around 13% since then, with macroeconomic headwinds being one of the main reasons.

Furthermore, concerns about silver door and potential ramifications for the industry have also kept the price in check in the last days.

Related: Bitcoin Price Drops 5% in 60 Minutes Amid Silvergate Uncertainty

"Any liquidity problems will have a direct impact on market conditions and may affect the access and availability of some client funds." warned John Toro, head of trading at the Independent Reserve digital asset exchange.

Technically, Bitcoin has maintained its short-term bullish bias by staying well above its two key EMAs: the 50 day EMA (red) near $22,500 and the 200 day EMA (blue) near $21,770.

However, traders should watch out for a possible break below the EMAs, which, coupled with rising rates and additional negative news, could see BTC price. retest key $20,000 support level in the coming weeks.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should do their own research when making a decision.