Bitcoin: A Hidden Correlation Awaiting Confirmation 1D (Aug. 10)

2020년 8월 9일

X Force Global Analysis:


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In this analysis, we explore the inverse correlation between Bitcoin ( BTC ) and the US Dollar Index ( DXY )

Right Side Chart Analysis

- To begin with, the U.S. dollar index ( DXY ) is a measure of the value of the U.S. dollar relative to the value of a basket of currencies of the majority of the U.S.'s most significant trading partners.
- On the right hand side of the chart, we see that DXY is about to test the ascending trend line support on the weekly
- This indicates potentiality for a huge bounce for DXY

Left Side Chart Analysis

- Recently, we have seen Bitcoin's bullish trend showing a correlated movement with Gold ( XAU/USD )
- When the US Dollar Weakens, Commodities including precious metals such as Gold appreciate in value
- Along with it, Bitcoin - a digital asset with a limited supply - also has shown an increase in value
- We can clearly see that since the first week of March, Bitcoin and the Dollar Index have shown an inverse correlation.

Market Sentiment:

The long short ratio remains at 71 to 29, with significantly more long positions in the market, reflecting the overly bullish sentiment.

What We Believe

Based on Bitcoin's negative correlation bewteen the U.S. Dollar Index ( DXY ), and the Dollar Index's bullish technicals, we believe that a corrective trend may be in play for Bitcoin in the immediate term.

Let us know what you think in the comment section below


Trade Safe.

2020년 8월 14일

노트

The reason we look at DXY to gain insight about Bitcoin's future price movement is smiple: Fiat USD is paper money, Gold is commodity/real money, and Bitcoin is digital money.



Above is a chart that demonstrates the price correlation between Bitcoin and Gold. Bitcoin's graph is marked in orange, and Gold in yellow. As demonstrated above, Bitcoin's bullish rallies and dips align almost perfectly with Gold, demonstrating their characteristics as real and digital assets / stores of value.

Again, going back to the correlation between these assets and DXY, Gold's bullish rally since 2012 was mainly due to the US Dollar weakening; i.e. the fall in demand for USD.

Demand for USD increases mainly due to two reasons:
1) When the fed funds rate increases, offering higher interest rates
2) When the US economy shows strong growth

However, not only have interest rates been dropping over the past few years, especially recently due to the Corona Virus (COVID-19) Pandemic, but unemployment rates have also caused stagnation in America's growth.

So, the two factors that make the Dollar appealing - the interest rate and strong economic growth- have contributed to DXY's bearish trend. Moreover, the fact that other nations such as China are being careful with Quantitative Easing (QE) deteriorates the situation.

This has been the situation so far. So, the Fed and the US government have been thinking of ways to boost demand for USD. In other words, ways to make the dollar more appealing.

The Fed is attempting to limit the supply of USD, by slowing down their rate of purchasing mortgage bonds, preventing the general public's expectations on negative interest rates or yield curve control, and being careful with further fiscal deficits.



Above is the U.S. Dollar Index (DXY)'s monthly chart, demonstrating potentiality for a bounce on the ascending trend line support. As we can see, it has been on a downtrend for a very long time, looking to potentially bounce not only in terms of technicals, but also in terms of fundamental policy changes.

As DXY and Gold (in our case, Bitcoin) are clearly inversely correlated, expectations and measures to limit supply of the USD, as well as America's economic recovery will lead to a weakened demand for assets such as Bitcoin on a more fundamental level.