- The DXY index has plunged from $115 to about $100.
- Focus shifts to the upcoming non-farm payrolls (NFP) data.
- I explain the impact of a plumetting US dollar on Bitcoin prices.
The US dollar index has been in a freefall in the past few days as concerns about the American economy continues. The closely-watched DXY index dropped to a low of $101.45, the lowest level since February 2. It has dropped by more than 14% from its highest point in 2022 while gold price is nearing its all-time high. How will all these affect Bitcoin prices?
Why the US dollar index is falling?
The DXY index is a closely-watched gauge that measures the strength of the US dollar by comparing it with other top currencies like the euro, pound, and the Japanese yen. It rises when the US dollar is gaining against most of these currencies, especially the euro.
The US dollar tends to have an inverse relationship with gold and Bitcoin prices. In most cases, these assets tend to rally when the US dollar is falling and vice versa. For example, the Bitcoin price crashed to a multi-year low in 2022 a the DXY jumped to the highest point in more than 20 years.
The US dollar has dropped mostly because of the strength of the euro and sterling, which have jumped by more than 15% in the past few months. This happened as Europe managed to avoid an expected recession in the first quarter. In Q4, most analysts were expecting the bloc to sink into a recession because of higher gas prices. Instead, gas prices crashed to a two-year low.
The next key catalyst for the US dollar index will be the upcoming non-farm payrolls (NFP) data scheduled for Friday. Economists expect the data to show that the unemployment rate remained at 3.7% in March as the economy added over 200k jobs.
These numbers will be important because they will influence the next Federal Reserve decision scheduled for March. Analysts believe that the Fed is about to end its rate hikes. As such, some analysts expect that the DXY index will continue falling and move below $100.
Impact on Bitcoin prices
If analysts are accurate, then it is a good sign for Bitcoin and other cryptocurrencies. Historically, Bitcoin tends to do well in a period when the Fed is not hiking interest rates and when the US dollar index is falling. All this explains why BTC price has jumped from $15,500 earlier this year to over $27,000.
From a technical perspective, we see that the BTC price has been in a strong bullish trend in the past few weeks. In this period, it is being supported by the 50-day and 100-day exponential moving averages.
Most importantly, the coin has formed a bullish flag pattern that is shown in orange. Therefore, there is a likelihood that BTC prices will have a bullish breakout soon. If this happens, the next level to watch will be at $30,000.
