Bitcoin's inverse correlation against US dollar reaches lowest in 17 months


Bitcoin (BTC) has been inversely correlated with the US dollar since early 2022, and this correlation has intensified in recent months. As a result, Bitcoin and the US dollar reached negative 0.77, the lowest correlation coefficient for 17 months by July 3.

Meanwhile, according to TradingView data, bitcoin's correlation with the tech-heavy Nasdaq Composite soared over 0.78 in the same weekly session.

The performance of these markets year over year in the midst of recession period concerns stoked by the Federal Reserve's increase in the benchmark interest rate to combat rising inflation is mainly responsible for this. For instance, by 2022, the Nasdaq is down around minus 29.72 percent, and Bitcoin is down more than 60 percent.

The dollar, on the other hand, has excelled as seen by the US Dollar Index (DXY), a statistic that assesses its value against a group of major global currencies, which has been revolving around a high of 105.78 set in January 2003.

Dollar will continue to rise

The Fed appears forced to raise benchmark rates depending on how traders value front-end derivatives contracts.

It's worth noting that traders expect the Fed will increase rates by 75 basis points (bps) in July. They also stated that through the end of the year, the Fed will not raise interest rates from their current range of 1.25 percent to 1.5 percent by more than 3.3 percent.

However, the central bank may decide to stop its quick tightening if there is 3.4 percent growth by the first quarter of 2023. By the end of the next year, this might lead to a 50 basis point decline.

According to JPMorgan's survey of Wall Street experts, an early rate decrease is possible if inflation data starts to cool, lowering investors' desire for the currency. Furthermore, over 40 percent expect the dollar to finish 2022 at its current price level of around $105. Meanwhile, another 36 percent believe the dollar will correct by the end of the year.

“Forex is not a linear world. At some point, things turn around,” said Neuberger Berman head of global currency Ugo Lancioni. “I personally have a bias to short the dollar at some point.”

Bitcoin in 2022

A well-known technical pattern indicates that the dollar won't be able to continue its uptrend for the rest of 2022.

According to independent market analyst Agres, DXY's "double-top" pattern has been partially confirmed by two successive highs and the general support level of 103.81.

In general, when the price breaks through support and declines to the structure's highest point, the double-top pattern can be resolved. The double-top profit goal for DXY thus approaches 101.8, or 3.25 percent less than the current price.

“The dollar has become extremely overbought and hot,” said Agres, claiming that stocks and cryptocurrencies may profit from its drop in the impending sessions.

“Finally, it looks like [DXY] Will fall hard In the perfect confluence for the melt-up landscape. When [the] Dollar goes down, stocks and crypto rally.”

The MVRV-Z score for Bitcoin has fallen into the range just before a historically significant, long-term rise. Based on the information provided by this on-chain indicator, it appears that the price of bitcoin will drop below $15,600 by 2022.