فاریکس تجزیہ اور جائزے: 03.05.2022

03.05.2022 12:37 PM

US dollar index reaches swing high: should we expect rise in quotations of cryptocurrencies?

For the third month in a row, the Fed's entire policy has been aimed at reducing and withdrawing liquidity from high-risk markets and redirecting it into the US dollar. Almost all major financial instruments, which can be profitable in times of global turmoil, suffer from this policy. In addition to USD, government bonds and treasuries, which provide the US dollar, are benefiting. There is no reason to believe the situation will change given the rate hike. Regardless, we will try to put aside the fundamental backdrop and take apart an important component of the US dollar index movement, which may show some room for growth in other markets.

The US dollar index has maintained a continuous upward movement since June 2021. During this time, the index reached an important resistance area of 103. The asset did not manage to break through this level, but it consolidated slightly below it and is preparing for another rush. However, if you look at the monthly chart, you can see that the last time such a situation occurred was in 2016 and 2020. Each time the DXY started to decline and lost up to 15% of its value. It is also important to watch how other assets such as gold, NASDAQ, and Bitcoin behaved at this point.

If you watch the monthly time frames for 2020 of each of these assets, you can see the beginning or emergence of a strong uptrend. Given that, we can assume that if the DXY begins to correct, it will be a temporary weakening for other markets where liquidity will begin to flow in. However, how likely is that scenario? Considering the Fed meeting on May 4 and further key rate hikes, the US dollar is highly likely to break through this support zone.

Most likely, the asset will continue its upward movement to the level of 120. We can say that this is where the main stage of correction will start after the bull rally during the year. In this situation, it is important to understand that Bitcoin and the cryptocurrency market remain dependent on the US dollar. That is where most liquidity comes from, so when investing in cryptocurrencies, it is important to keep a close eye on the US dollar index. At least in 2022, this trading index will become the main index, as the Fed has announced it would curb inflation.

While analyzing this information, we can note that in the next two or three months Bitcoin and the cryptocurrency market will have a real chance to start a stable and upward movement. Meanwhile, a Head and Shoulders pattern has formed on the digital coin's daily chart. It is important to understand that the formation of the pattern was preceded by a downtrend, and as you may know, this pattern signals a reversal. Taking this into account, we can assume that the market has formed a signal for upward movement with the potential to rise to $60,000.

In the shorter term, we see buyers show weak activity and a gradual decline to the key support level of $37,400. Taking into account the decisions of the Fed in the coming days, we can expect two scenarios. The current consolidation ends with a breakout of the Bullish Wedge's upper boundary due to the key rate increase by 25 points, for which the market was ready. The second scenario suggests that the Fed will raise the rate to 0.75%, and the market begins a second wave of liquidity outflow from cryptocurrencies. In such a case, Bitcoin immediately declines into the range of $32,000-$35,000.