The DXY index is one of the main tools for determining the real “power” of the U.S. Dollar as the indicator shows USD’s growth against a bracket of foreign currencies. Expectedly, the growth of DXY usually drags other assets down as it makes more sense to support the currency that stops losing its value and offers stable income with bonds.
According to the correlation graph provided by IntoTheBlock, Bitcoin is showing an extremely strong negative correlation with DXY, so whenever the asset grows, Bitcoin and other risky assets fall.
Very strong negative correlation between the two 🧐
Available for free: https://t.co/Wx8RxQwatF pic.twitter.com/KiKn5jp67A
— IntoTheBlock (@intotheblock) July 5, 2022
The correlation can be reassured if we look at the movement of tech stocks that greatly affect the movement of Bitcoin and also have a negative correlation with the U.S. Dollar index.
How can it be used in crypto trading?
The continuous strengthening of the U.S. Dollar that we see today could be considered one of the main sources of pressure on Bitcoin. In the last 10 days, DXY rallied by 2.5%, which is considered a significant move. In the same period of time, Bitcoin has lost 5% of its value, as do most stocks in the U.S. market.
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But at the same time, technical indicators suggest that U.S. Dollar’s rally could be over quite soon as we see a strong divergence of DXY with the Relative Strength Index right at the top of the rally, which is one of the strongest reversal indicators out there.
At press time, Bitcoin is trading at $20,110 and showing a mild price decrease in the last 24 hours while moving in a calm consolidation range for the last two weeks.