The recent bankruptcy filings of cryptocurrency firms and banking issues have caused Bitcoin investors to suffer a major blow. However, there’s another potential problem that Bitcoin may face soon: a recovering U.S dollar. The U.S. dollar index (DXY) has risen by 4% from its February 3 low of 100.82 amidst expectations that the Federal Reserve will aggressively raise interest rates to combat inflation.
Despite investors’ fears of an imminent recession, the latest United States data shows that there is still no such indication, given its strengthening jobless claims that fell to 190,000 in the week ending February 25, and increased consumer spending in January. However, the majority (90%) of the United States manufacturers surveyed in Bloomberg reported a rise in input prices, showing that inflationary pressures remain, though not as severe as during the pandemic.
The Federal Reserve Governor Christopher Waller noted that if data reports continue to be too hot, the policy target range will have to be raised this year even more. Bank of America Global Research anticipates that the Federal Reserve will raise the interest rate to almost 6% from the current 4.5-4.75% range. This theoretically renews investors’ demand for the dollar by putting downside pressure on riskier assets like Bitcoin.
From a technical perspective, the U.S. dollar index looks set to rise by more than 4.5% due to the formation of a classic bullish reversal pattern, known as an inverse head-and-shoulders (IH&S). It develops when the price forms three troughs below a common resistance line (neckline), with the middle trough (head) deeper than the other two (left and right shoulders). The IH&S pattern resolves after the price rises by as much as the maximum height between the pattern’s lowest level and the neckline. If the dollar index successfully breaks above its neckline of 105.25, the probability of an extended recovery heading toward 109.75 in 2023 will be higher.
Meanwhile, Bitcoin’s bull rally has failed to sustain its price rally in breaking the $25,000 technical resistance level. BTC price has tumbled around 13% since then with macro headwinds being one of the primary reasons. Moreover, concerns over Silvergate and its potential effects on the cryptocurrency industry have kept the price in check over the past few days. “Any liquidity concerns 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 digital-asset exchange Independent Reserve.
Bitcoin has kept a short-term bullish bias by holding strongly above its two key exponential moving averages (EMA), the 50-day EMA (red) near $22,500 and the 200-day EMA (blue) near $21,770. However, traders should watch for a potential break below the EMAs coupled with rising rates and any potential negative news, factor that could see BTC price retest the key $20,000 support level in the upcoming weeks.
This article aims to inform readers about the risks currently facing Bitcoin, and should not be taken as investment advice. Every investment and trading move involves risk, and readers should conduct their research when making investment decisions.
