DXY Chart May Be Indicating Dollar Top

A while back we published a macro roundup that suggested the big picture isn't as pessimistic as a lot of news headlines and mainstream analysts have claimed. In short, while it isn't all roses, stock markets and crypto appear to be in a strong uptrend, gold looks set to break its all-time high, and the dollar has paused in its recent rise, potentially putting in a top.

The Importance Of The Dollar

The strength of the US dollar—how attractive it is a safe haven for traders and as a global currency—has a huge impact on the markets. In particular, "risk" assets including stocks, real estate, and of course crypto, are sensitive to movements in the dollar.

In short, if the dollar is worth more, then (all things being equal), assets priced in dollars will be worth less. When the dollar falls in value, dollar-denominated assets are given a tailwind. Crypto's 2022 bear market was partially prompted by interest rate rises, which tend to strengthen the dollar. Continued dollar strength is a headwind to further price rises—although other factors can outweigh this, as we have seen recently.

The USD Stalls

On purely technical grounds, the dollar may very well now have put in a local top. While we wait for confirmation, it does appear that weakness is coming into the market. Following 11 consecutive weeks of rises, over the past month the dollar has put in what looks like a double top around 107.

105 is a long-term support/resistance level going back to 2022, as can be seen from the chart above. Today, it broke down to a six-week low just above that point.

107 is also the 50% mark from the macro top back in September 2022 to the bottom in July 2023, so this would be a natural point for the dollar to find resistance, and potentially roll over. The series of lower lows suggests that is just what has happened.

Looking At The Fundamentals

Away from the technicals, it's likely that the macro environment will favor a weak dollar in the coming months. While there may be further interest rate rises, this is looking relatively unlikely, and in any case there would probably be only one more at most. Markets tend to be forward-looking, so it's quite possible that traders have factored this in and are anticipating a time in the not-too-distant future when rates will start to fall, and the dollar becomes less attractive on the global stage.

In short, it's still too early to say that the dollar is in a downtrend, but that would be consistent with both the fundamentals and the technicals.

That would be very significant for the next stage of the crypto market cycle, as we near the one-year point from the bear market low, optimism starts to return, and key technical levels for BTC are challenged.

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