The US Dollar, which has been in a massive uptrend since July 2014, has been sliding in recent days after last week’s Federal Reserve meeting. It is now being assumed by market pundits that the Federal Reserve will hike interest rates later than expected.
This has led to a correction within a major uptrend in the USD and has given life to Euro, gold, oil, and most other commodities. Bitcoin, which has been lagging these other asset classes, may be able to follow if the dollar’s weakening continues. Of course, some more good news would also help to counterbalance the recent slew of bad news.
The USD has broken a 30 year downtrend (see chart below) and is poised to go higher once this correction is over. This is highly significant. The fact that a major downtrend has been reversed is something that should be paid attention to and respected. Therefore, one should not expect a major slide in USD.
However, there is still room for further downside as the chart below shows. The USD has broken below its 20 day exponential moving average (EMA) and has support in two areas below, the 38.2% Fibonacci retracement line where it ended the day today and then the 50 day EMA at 95.96. If this fails, the correction should go to around the 94 area.
The negative correlations between the USD and commodities and all other foreign currencies remains intact. The chart below shows the last 10 days of price in USD, gold, oil, the Euro, and a commodity basket ($CRB).
The USD peaked on March 16, which was the high of this move, notice what happens when USD starts to correct, all of these other asset classes have begun big countertrend moves. With further USD weakness this move should continue.
Below is a longer term (1 year chart) version of the same chart. The negative correlations remain very strong, which means the trend should continue as the relationship between USD and commodities and currencies should remain intact Relief rallies can be very powerful and sharp, one would expect this to be the case with most of these assets as they have been long downtrends.
Below is the bitcoin chart showing that BTC has not really participated in this relief rally caused by the dollar’s current weakening. There is hope though as bitcoin has remained above its short term bullish trendline.
Thus, as long as it remains above this trendline and breaks through strong short resistance at US$280 while the USD continues weakening, bitcoin has a good chance to test the short term closing high above the US$300 mark.
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