BTC - It's A Dollar Story

BITSTAMP:BTCUSD   Bitcoin / U.S. Dollar
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After a nice quick bounce up from point E of the recent descending wedge (blue), BTC showed great follow-through as it rode that momentum clear through the upper band of the channel. And with great volume too, signifying a lot of buying interest.

We can now see the first part of the next trendline (green) beginning to take shape. It's still too early to tell if the current green line will be like the last green line that broke out of the prior descending wedge (purple). For the current green line to be genuine, it needs to clear point A ($11,000) as well as point B ($12,000).

The question now is... what caused this recent upturn? If we can find the cause, we'd have a much better idea of where this is going.

The cause of the sharp bounce up from its recent low at point E seems quite clear if we bring up a 3-year chart of the US Dollar Index ( DXY ).

First, the USD had been in a downtrend from the beginning of 2017 to the beginning of 2018, as it fell from 104 to 88 versus a basket of foreign currencies. What did BTC do during that time? Even people who don't own Bitcoin know that... it skyrocketed, rising from $1,000 to nearly $20,000.

Next, the USD ran up from the beginning of 2018 until around April/May of 2019, rising from 88 to just over 98. What did BTC do during that time? Well, it caused a lot of people to lose their shirts (and cars and apartments and girlfriends) as it fell from $20,000 to $3,500.

Finally, the USD started falling again in the April to May time frame. What did BTC do? True to the pattern, it started rising. Only it had a head-start as it started to rise in early April a few weeks before the USD started to sink. (The big money knows BTC's connection to USD.) Over the last couple of months, the US dollar index ( DXY ) has been in a descending channel of its own, with lower highs and lower lows, while BTC rose from $5,000 to $14,000 during that time.

Of course, BTC just recently sank to $9,000. Yet this closely mirrored DXY's intermediate upswing in the middle of its down-channel. Today, DXY resumed its downward trajectory within its down channel , which is why BTC enjoyed the nice spike we just saw.

Now that we have a clear inverse correlation between DXY and BTC , we can extrapolate where BTC is heading. The markets know the US FOMC is planning on cutting interest rates this July 31, which will weaken the USD. We also know the FOMC has adjusted the wording of its recent press releases, indicating it is more patient regarding raising rates in the future, and even hinted at its leaning toward more interest rate cuts if the economy requires them.

So for an indication of where BTC is heading we can watch the USD. Over the next year and a half leading up to the US presidential election of November 2020, we can expect President Trump to do everything he can to weaken the USD in order to boost the stock market and help himself get re-elected. Add to that a softer FOMC with a few interest rate cuts up its sleeve and we have a recipe for a strong drive upward for BTC . There will be dips along the way. But nibble away at them as they come (and we'll all get our cars back).


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