The US dollar began to recover from a multi-year support level. Simultaneously, both Bitcoin (BTC) and gold prices fell.
In addition, the European Central Bank’s (ECB) warning against the appreciation of the Euro is further catalyzing the Dollar’s recovery.
The ECB seeks to weaken the euro while the dollar is just beginning its recovery
Bitcoin and gold prices respond negatively to the rising dollar because the markets value both assets with the dollar. If the dollar value goes up, the value of BTC in relation to the dollar goes down.
Since the dollar has risen since its monthly opening on September 1st, the price of Bitcoin has fallen from $12,086 to a low of $11,160. Gold has experienced a similar response, falling almost 1.8% in the last two days.
An expert says the digital yuan does not represent a threat to the dollar’s hegemony
The daily chart of the U.S. dollar index with key levels
In the short term, analysts generally anticipate that the dollar’s momentum will strengthen. This week, the ECB said it would seek to offset the euro’s rise by controlling exports and encouraging more monetary stimulus.
Currency analysts believe that the ECB could continue to „cushion“ the strength of the euro. In the short term, that could cause the dollar to recover, which could put selling pressure on Bitcoin and gold. MUFG analyst Lee Hardman said:
„Overall, the comments suggest that an immediate policy response from the ECB to help weaken the euro seems unlikely, and for now they will rely more on jawbonings to curb the strength of the euro.
But foreign exchange strategists predicted that the euro would collapse against the dollar after an initial rally. In a note to clients, Arkera’s global macro-strategist Viraj Patel said the euro is approaching the „pain threshold“ of policymakers.
The end of the dollar as we know it?
If the euro recovers further, Patel suggested that a strong reaction from the ECB is likely. Since then, the ECB has warned against the euro’s rise on multiple occasions.
It remains uncertain whether the trend of the dollar’s recovery and the euro’s weakening will continue. There is a possibility that both the Euro and the Dollar will fall simultaneously.
For now, considering the strength of the Dollar’s rally, Bitcoin traders are becoming cautiously bearish.
What BTC traders believe will happen in the short term
According to Michael van de Poppe, a full-time trader at the Amsterdam Stock Exchange, Bitcoin could fall to $11,600 if support levels of $11,200 are maintained.
A potential short-term Bitcoin price scenario
Analysts Fear Strong U.S. Dollar Could Dampen Bitcoin’s Bullish Momentum
Since August 26, for more than a week, the $11,200 level has served as a key support area for Bitcoin. About this, Poppe wrote:
„The first major pivot couldn’t provide a Etoro breakthrough, so we’ll be testing the lows again. If these are maintained -> another test and a possible rebound to $11,550-11,700. If a breakdown occurs, it would point to $10,600-10,800 „.
The XO trader, who trades with crypto-currencies and foreign exchange markets, said the dollar rebounded to a „huge“ monthly level. If the dollar index recovers to the next resistance by more than 94.5 points, it could cause the BTC momentum to slow down. XO tweeted:
„The daily bullish pin bar was printed on Tuesday and the price has broken through the bearish channel. The price also recovered a huge monthly level. He will continue to look for short and long dollar pairs in euros. As for BTC, no comment“.