DXY (Dollar Strength Index) / GOLD compares USD’s performance against the number 1 most correlated asset with BTC –> Gold. DXY is negatively correlated with BTC. The idea is when DXY/GOLD is bullish – USD rises, GOLD falls or both; which is bearish for BTC. When DXY/GOLD is bearish – USD falls, GOLD rises, or both; which is bullish for BTC. This theory is in line with both assets’ historic correlation with Bitcoin.
Since DXY/GOLD’s bearish breakout attempt out of the yellow support line on the 1st of April, BTC had a strong bullish sentiment. Nevertheless, since May 16th DXY/GOLD failed to retest to the downside and has returned above the yellow support. Moreover, it rapidly spiked up to its crucial downward-sloping yellow resistance line, as BTC dropped in line with the theory.
My personal outlook in the short term is bullish for the spread graph and therefore bearish for BTC.
3 main reasons why:
- Before full FOREX stability, I expect major economies to be politically focused on their currency strengthening, one side prioritizing de-dollarisation and the other re-dollarisation.
- Inflationary demand shock is unlikely to hit the safe heaven markets (particularly gold) any harder than it already did.
- Historically years/months which are close to the start of heavy recessions have often been bullish, making recent equity and crypto gains hopeless.
Both graphs zoomed out:
BTC up close:
Thank you for your time. Please do share your opinion, I would love to improve this theory further.