Market analysts predict that the dollar surge will either stagnate or reverse by the end of 2022, favoring Bitcoin
Since the beginning of 2022, Bitcoin (BTC) has been heading in the opposite direction of the US dollar – and that inverse connection is now more intense than ever.
Bitcoin and the dollar move in opposite directions.
Notably, the weekly correlation coefficient between Bitcoin and the US dollar fell to 0.77 below zero in the week ending July 3, the lowest level in seventeen months.
Meanwhile, according to TradingView data, Bitcoin's correlation with the tech-heavy Nasdaq Composite hit 0.78 above zero in the same weekly session.
This is mostly due to these markets' year-to-date results amid recessionary worries, which have been fueled by the Federal Reserve's benchmark rate rises to combat growing inflation. Bitcoin, for example, has lost more than 60% in 2022, while Nasdaq has lost roughly 29.72 percent in the same period.
The dollar, on the other hand, has performed admirably, with the US dollar index (DXY), a statistic that measures its strength against a basket of leading international currencies, lingering near its January 2003 highs of 105.78.
Will the dollar continue to rise?
Based on how traders priced front-end derivative contracts, the Fed looks obligated to raise benchmark rates.
Notably, traders expect the Fed to increase interest rates by 75 basis points (bps) in July. They also believe the Fed would not raise interest rates over 3.3 percent by the end of the year, from the current 1.25 percent -1.5 percent range.
However, a rise to 3.4 percent by the first quarter of 2023 may cause the Fed to ease off on its rapid tightening.
As illustrated in the figure below, this might result in a 50 basis point drop by the end of next year.
According to Wall Street economists polled by JPMorgan, an early rate decrease might occur if inflation data cools, restricting investors' desire for the currency. Notably, over 40% expect the dollar to end 2022 at its current price levels — around 105.
Another 36% predicted that the dollar will fall by the end of the year.
"Foreign exchange is not a straight line. Things will change at some point "Ugo Lancioni, head of global currency at Neuberger Berman, added:
"I personally have a bias to short the dollar at some point."
Furthermore, a traditional technical pattern may limit the dollar's capacity to extend its surge for the remainder of 2022.
The DXY's "double top" pattern, first observed by independent market analyst Agres, is partially corroborated by two successive highs and a common support level of 103.81.
As a general rule, the double top pattern will resolve when the price breaks below the support and falls by the maximum height of the structure, as seen in the chart below.
As a consequence, DXY's double top profit target is at 101.8, a drop of more than 3.25 percent from today's price.
"The dollar is incredibly overbought and hot," Agres stated, adding that its subsequent decline might boost equities and cryptocurrencies.
"Finally, looking like it [DXY] will topple down hard. In perfect confluence for a melt-up scenario. When [the] dollar goes down, stocks and crypto rally."
Meanwhile, Bitcoin's "MVRV-Z Score" has slipped into a region that has previously foreshadowed dramatic, long-term upward retracement. According to this on-chain indicator, Bitcoin might reach a low of $15,600 in 2022.
