Could a Resurgent Dollar End the Bear Market Rally?


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  • The U.S. Dollar Index has been showing strength in the last few days, while the crypto market has stagnated
  • The DXY has jumped following better than expected inflation data, while the crypto market has hit a wall
  • Could the bear market rally be over?

The U.S. Dollar Index has been showing surprising strength this week after better than expected inflation data last week, at the same time as the crypto market has hit a patch of strong resistance. With crypto looking like it may be tapped out, what are the chances that the dollar is going to reign supreme again (at least temporarily) and teach crypto a lesson?

DXY On The March

The DXY has been on a steady upwards climb since putting in a double bottom in the first half of 2021, reaching highs not seen since 2002:

dxy 1

While some believe there is no correlation with Bitcoin, history has shown us that the two are typically opposing in their trends – when one is trending up, the other is trending down. This has proved to be the case, with the DXY accelerating its growth in the latter half of 2021 and into 2022.

The DXY finally ran out of steam in mid-July, but the anticipated correction has not been as much as many anticipated. Instead of retracing to previous support at 102 level, it has instead bounced right back up to 106, fueled by better inflation data than expected last week:

dxy 2

This suddenly brings back into play the idea that the DXY could crack the crucial resistance at 109, leaving it wide open to put on a spurt up to the 2001-02 double top at 120. This would be disastrous for the crypto markets, and the equities markets in general, but would not be a surprise with a recession on the horizon.

Crypto Market Looking Tapped Out

However, there may already be signs that the recent crypto rally is coming to an end. The total market cap has enjoyed a nice bounce from lows it put in in June and July, but it has hit a brick wall at prior support:

total 1

This is a bad sign, and, if this is a typical bear market rally, would suggest that a collapse back down to prior lows is imminent. Bitcoin, too, is approaching the resistance line of a downtrend that started in the November 20210 peak:

btc

Ethereum, too, is looking exhausted after its recent run, potentially putting an end to the ‘merge’ narrative:

ETH

Overall then, it looks like the bear market rally may be over and the dollar is about to do what it does best in difficult times, much to the chagrin of the crypto community.

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