BTC Above 200-week average as the dollar index rises the most
The heavily shorted US dollar rallied against the basket of fiat currencies last week, putting pressure on risk assets including bitcoin (BTC). However, the leading cryptocurrency held on to key support in a positive sign for the market.
The dollar index, which measures the greenback’s performance against fiat currencies, rose more than 1.3%, registering its biggest one-week percentage increase since February, data from charting platform TradingView showed.
Bitcoin fell 5.8%, living up to its reputation of being negatively correlated to the dollar. However, sellers failed to establish a foothold below the 200-week simple moving average, a widely tracked technical line that limited upside in February.
“By defending this key average, the bulls have convinced the market of the sustainability of the long-term bullish trend,” Alex Kuptsikevich, senior market analyst at FX Pro, said in an email.
Per Kuptsikevich, the cryptocurrency needs to top $28,500 to bring in cautious buyers waiting on the sidelines for stronger evidence of the end of the price pullback. At press time, bitcoin was changing hands near $27,400, up 1.4% on the day, after hitting a high above $31,000 last month.
Some observers expect the dollar to continue moving higher, keeping cryptocurrency gains in check.
“ I think the dollar is headed for a bounce as markets take back some FED easing hinted at in the futures curve. My basic currency framework: currencies are driven by real growth differentials and political considerations over longer cycles, but in the short term it’s all about playing relative central bank policy (changes in nominal interest rates). Depending on how violent the dollar rally becomes, it could cause short-term damage to assets such as commodities and crypto,” Ilan Solot, co-head of digital assets, derivatives engine at Marex, said in an email.
Analysts at Swissblock Insights expressed a similar view in a note to subscribers on Friday.
“DXY could reach anywhere from 104 to 107 considering it has crossed the 102 level since mid-March,” analysts said, adding that renewed dollar strength could continue to push BTC as ties to TradFi strengthen.
According to Swissblock Technologies, the impending dollar spike is likely to pave the way for a deeper decline that would bode well for cryptocurrencies.
“This month-long structure will eventually break and both assets will experience price discovery – bitcoin to the upside and DXY to the downside,” Swissblock Insights said.
Solot expects a pullback in bitcoin to be short-lived, offering a “great entry point to position” for investors.
Wallets known to hold coins for at least six months have been accumulating coins during the recent weakness, suggesting confidence in the cryptocurrency’s long-term prospects.