Bitcoin's Negative Correlation with US Dollar Index
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It is already pretty obvious to any analyst - a stronger dollar means a weaker crypto or stock market, and a weaker dollar trends toward stronger crypto and stock markets.
As you can see on the chart, Bitcoin (BLX) has a crystal clear negative correlation with the US Dollar Index (DXY), as expected. So, why am I talking about it?
Each time DXY has peaked, BLX has made a new low, and vice versa. A large majority of these major milestones first occur on DXY, prior to following in the opposite direction with Bitcoin. There is one exception noted above during the March 2020 black swan event, where DXY peaked after Bitcoin and stock markets bottomed. Otherwise, most of these events happen first on DXY, and then markets follow.
Presently, DXY has closed its weekly candle above the neckline of a confirmed head & shoulders pattern. Is this just a pullback, or are we headed towards ~105-106 and a failed HS?
If you zoom out on DXY's monthly chart, it looks more like a bullish re-test of a breakout, but still possible it moves back down into the 90s:
Conclusion:
Can we use this assumption again now: that DXY can an early indicator in determining direction of Bitcoin and the crypto/stock markets as a whole?
As you can see on the chart, Bitcoin (BLX) has a crystal clear negative correlation with the US Dollar Index (DXY), as expected. So, why am I talking about it?
Each time DXY has peaked, BLX has made a new low, and vice versa. A large majority of these major milestones first occur on DXY, prior to following in the opposite direction with Bitcoin. There is one exception noted above during the March 2020 black swan event, where DXY peaked after Bitcoin and stock markets bottomed. Otherwise, most of these events happen first on DXY, and then markets follow.
Presently, DXY has closed its weekly candle above the neckline of a confirmed head & shoulders pattern. Is this just a pullback, or are we headed towards ~105-106 and a failed HS?
If you zoom out on DXY's monthly chart, it looks more like a bullish re-test of a breakout, but still possible it moves back down into the 90s:
Conclusion:
Can we use this assumption again now: that DXY can an early indicator in determining direction of Bitcoin and the crypto/stock markets as a whole?
Not
If you look at the Correlation Coefficient indicator at its default settings on the weekly charts comparison, it doesn't make much sense, but if you set its length to 35, it looks closer to what we can expect, and now it is moving back towards negative correlation again:Not
Wrote a new indicator for this, to compare correlation with DXY and XAU for Bitcoin, or in the bottom pane comparing BTC and XAU with DXY. As you can see, both Bitcoin and Gold are moving into strong negative correlation with the US Dollar Index. Whatever DXY does, expect the opposite for Bitcoin (and Gold):New indicator is published here if you would like to try it:
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