Steady inflation and a strong labor market make it easier for the Fed to hike rates in 2023, which could push Bitcoin against the dollar.
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Investors reeling from the shock of recent crypto collapses and banking woes may be dealing with another fundamental problem: the US dollar is recovering.
The strength of the US dollar is re-emerging
Namely, the US dollar index (DXY), which tracks the dollar against a basket of major foreign currencies, rose 4% from its February 3 low of 100.82, amid Scen predicts that the US central bank will continue to increase key interest to cool down. inflationary.
Long-term inflation
An atmosphere of caution remains as new US data shows a recession is yet to come.
That includes the latest jobless claims, which fell 2,000 to a seasonally adjusted 190,000 for the week ended Feb. 25, and stronger spending in January.
Meanwhile, 90% of US manufacturers surveyed by Bloomberg complained about rising input prices even as supply chain problems eased.
Although the problem is not as severe as during the pandemic, the survey shows that inflationary pressures have not disappeared despite the Fed’s aggressive rate hikes.
“Recent data shows that consumer spending has not slowed as much, the labor market continues to grow unsustainably hot, and inflation is not falling as quickly as I thought,” Fed Governor Christopher Waller said. Additional note:
“If those data reports continue to overheat, the policy target range will have to increase even more this year.”
Bank of America Global Research predicts the Fed will raise rates to nearly 6% from the current 4.5-4.75% range. In theory, this would renew investor demand for the dollar by putting pressure on “riskier” assets like Bitcoin.
DXY diagram drawing inverse head and shoulders
From a technical perspective, the US Dollar Index looks set to rise more than 4.5% in the coming months due to the formation of a classic bullish reversal pattern.
Called an inverse head and shoulders pattern, the pattern develops when price forms three bottoms below a common resistance line (the neckline), with the middle bottom (the head) deeper than the other two (the left shoulder). and right shoulder).
The inverse head and shoulders pattern is resolved after the price breaks through the neckline and rises to the maximum height between the bottom of the pattern and the neckline.
If DXY successfully breaks above the 105.25 mark, the possibility of a prolonged recovery towards 109.75 in 2023 is greater.
Bitcoin cost to retest $20k?
The outlook for a stronger dollar comes as Bitcoin bulls are unable to sustain their bullish momentum on breaking the $25,000 technical resistance level. The price of BTC has fallen about 13% since then, and one of the main reasons is the macro headwinds.
Furthermore, concerns over Silvergate and the possible fallout for the industry have also kept prices under control over the past few days.
Related: Bitcoin Price Down 5% After 60 Minutes Amid Silvergate Uncertainty
John Toro, head of trading at digital asset exchange Independent Reserve, warned: “Any liquidity concerns will have a direct impact on market conditions and could affect market conditions. affect the availability and availability of certain client funds”.
Technically, Bitcoin maintained its short-term uptrend by holding firmly above its two major exponential moving averages (EMAs): the 50-day EMA (red) near $22,500 and the 200-day EMA (green) near $21,770.
However, traders should keep an eye on the possibility of a break below the EMA, which, with bullishness and more negative news, could see BTC price retest the key $20,000 support in the coming weeks. .
