Stronger dollar prospects risk pushing down Bitcoin price to $32K

The U.S. dol­lar’s abil­i­ty to con­tin­ue its ral­ly in Q2 could prove fatal for Bit­coin (BTC), which has demon­strat­ed inverse cor­re­la­tion with the dol­lar since Jan­u­ary 2022.

Dollar paints “bull flag”

The U.S. dol­lar index (DXY), which mea­sures the green­back­’s strength against a bas­ket of for­eign cur­ren­cies, reached its 21-month trad­ing high of 99.82 on April 7, the high­est lev­el since May 2020. 

The index now looks poised to con­tin­ue its upside move fur­ther as it breaks out of a clas­sic bull­ish con­tin­u­a­tion pat­tern — called a “bull flag.”

In detail, bull flags appear when the price con­sol­i­dates low­er inside a par­al­lel descend­ing chan­nel after under­go­ing a strong uptrend (called flag­pole). In the­o­ry, the pat­tern is resolved after the price breaks out of their range to the upside to reach the lev­el locat­ed at a length equal to the flag­pole when mea­sured from the break­out point.

The bull flag set­up there­fore puts the next upside tar­get for DXY at 101. 

Golden cross on the weekly chart

The DXY index is also form­ing a bull­ish gold­en cross for the first time since April 2019.

Gold­en cross­es occur when an asset’s short-term mov­ing aver­age ris­es above its long-term mov­ing aver­age. Many ana­lysts con­sid­er the crossover as a bull­ish tech­ni­cal sig­nal due to its his­to­ry of pre­ced­ing strong uptrends.

DXY’s last gold­en cross between its 50-week and 200-week expo­nen­tial mov­ing aver­ages (EMA) had come before a 4% upside move. 

A sim­i­lar bull­ish set­up now nears for a 50–200 EMA crossover in April, notes Alexan­der Mama­sidikov, co-founder of cryp­to wal­let ser­vice MinePlex.

“The for­ma­tion of the Gold­en Cross on the U.S. dol­lar index marks a peri­od of tem­po­rary strength for the green­back with an expec­ta­tion for it to tick stronger growth poten­tials against oth­er cur­ren­cies,” he explained, adding: 

“The ensu­ing strength of the U.S. dol­lar fol­low­ing the gold­en cross for­ma­tion will help to stump the impact of infla­tion as the green­back­’s pur­chas­ing pow­er is boosted.”

Where does it leave Bitcoin?

Inter­est­ing­ly, Bit­coin has been form­ing the oppo­site set­up to the dol­lar dubbed a bear flag — sug­gest­ing more pain ahead for the BTC/USD pair.

Relat­ed: Bit­coin bulls may have to wait until 2024 for next BTC price ‘rock­et stage’

Bear flags appear when the price con­sol­i­dates high­er inside a par­al­lel ascend­ing chan­nel and resolve after it breaks below the chan­nel’s low­er trend­line with con­vinc­ing vol­umes. In a “per­fect” sce­nario, a bear flag break­out results in the price falling as low as the height of the pre­vi­ous downtrend. 

Thus, Bit­coin could see a drop to the flag’s low­er trend­line around $40,000, open­ing the door for a drop toward $32,000.

There it is, now we’ll check off the 2nd tar­get box on $DXY drawn months ago.
- Dai­ly, Week­ly, & Month­ly RSI look bull­ish
- Dai­ly, Week­ly, & Month­ly MACD look bull­ish
- Above 200 W MA since Novem­ber
- May 2020 last time it was this high

Risk off for #bit­coin, #cryp­to, $stocks? https://t.co/jzaCOb4fIk pic.twitter.com/hMEBrxHgW2

— Jesse Olson (@JesseOlson) April 7, 2022

Nonethe­less, Mama­sidikov says Bit­coin could hold above $42,500 even if the dol­lar ris­es on the oth­er end of the spectrum. 

Recall­ing the adop­tion boom of sum­mer 2021 (when Bit­coin’s cor­re­la­tion with the DXY was large­ly pos­i­tive), investors con­tin­ue to hodl BTC as a part of their long-term strategy.

He adds:

“Despite the seem­ing uncer­tain­ty in the mar­ket, Bit­coin has formed strong sup­port at $42,500 and has the fun­da­men­tal back­ing to retest $47,000 in the short term.”

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