FX.co ★ US dollar index approaches strong resistance zone: what this means for Bitcoin and high-risk assets

For the past two months, the situation for high-risk asset markets has been deteriorating day by day. Investment potential is falling, and buyers are struggling to defend key support zones without prerequisites for a powerful upward momentum. All this indicates a gradual decrease in liquidity in such markets and a transition to a long-term storage strategy. The main beneficiary of the fall of Bitcoin and the cryptocurrency market is the US dollar.

After record inflation for 30 years, the Fed has largely changed its approach to setting the key rate. In March, it was raised by 25 basis points, and there is every reason to believe that at the May meeting, the figure can be increased immediately by 50 points. This is an extremely negative signal for high-risk assets, which are now perceived by cryptocurrencies. However, such measures stimulate the decline in the inflation index and the strengthening of the USD. The indicator of the main fiat currency of the world has reached an important mark of 100. And here the asset may have problems that will stop its growth and give a respite to cryptocurrencies and Bitcoin.

The fact is that the DXY indicator has reached an important resistance zone in the area of 102-103. In addition, the asset is in the stage of a protracted bullish rally, as evidenced by technical indicators. The MACD is near the 100 mark, while the RSI and Stochastics have broken through the bullish zone and are in the overbought zone. All these factors indicate the need for correction. And given the complexity of the 102-103 resistance zone, there is every reason to believe that the USD may take a break. It is likely that during the correction, the stock markets and the cryptocurrency market will get the necessary pause and be able to recover.

However, it is important to understand that, despite the local weakening of the USD, a program to reduce liquidity, released in the period from 2019 to 2021, starts in May. The goal of the Fed is to reduce the inflation index to an acceptable 2%-3%. This suggests that the immediate correction of the US dollar should first of all be perceived as an opportunity to realize local profits. In the future, the asset will continue to decline, as can be seen from the current growth dynamics, when a strong bearish engulfing pattern appears after a recovery candle.

It is also important to understand that the DXY correction is not primarily a guarantor of the growth of Bitcoin, but a decrease in bearish pressure on the asset. Everything else depends on the buyers. As of now, the asset is in a strong support zone of $37.4k-$39k. However, it is important to understand that a full breakdown of $40k took place, and the asset began trading in a range below the round mark. This indicates the strength of sellers and low trading and buying volumes. If the weakening USD has an effect on the crypto market, then in the near future we should expect another assault on $40k. The success of this venture will depend on buying activity, which should also grow against the backdrop of a local dollar correction.