Will Bitcoin’s Rally Sustain? DXY, SPX, GC and WTI may have the answer
Federal Reserve Chairman Jerome Powell said in a question-and-answer session hosted by the Cato Institute on September 8 that the central bank will continue to raise interest rates until inflation is under control. However, those comments did not rattle the markets as much as most would have expected, indicating that traders may have already factored in a 75 basis point rate hike into the Fed’s next meeting on 20-21. September.
Bitcoin has been highly correlated with the S&P 500 and inversely correlated with the US Dollar Index (DXY) in recent weeks. With DXY cooling after reaching a two-decade high, risky assets have attempted to recover.
US stock markets are trying to snap a three-week losing streak while Bitcoin (BTC) has risen above the psychological level of $21,000.
Does the rally in the stock and crypto markets indicate that the risk on sentiment is back? Let’s analyze five asset classes to review their trends and see where they might go in the next few days.
BTC/USDT
Bitcoin rebounded from the strong support at $18,626 on September 7 and broke back above the $19,520 breakdown level on September 9. This may have triggered short covering by the aggressive bears, which drove the price above the 20-day exponential moving average (EMA) ($20,434).
The relative strength index (RSI) has risen into positive territory and the 20-day EMA is flattening, indicating that the bears may be losing their grip.
The 50-day simple moving average (SMA) ($21,981) could act as a minor obstacle, but if bulls overcome it, the BTC/USDT pair could rally to the overhead resistance at $25,211. A break and close above this level could complete a double bottom pattern. Such a move can signal the start of a new up move. The pattern target for this reversal setup is $31,796.
Contrary to this assumption, if the price breaks down from the 50-day SMA or $25,211, the pair may enter a consolidation for a few days.
The 4-hour chart shows that the pair gained momentum after breaking above $19,520. The moving averages have completed a bullish crossover, indicating benefit to buyers, but the RSI in the overbought zone suggests a minor consolidation or correction in the near term.
If the price breaks down from today’s level or the overhead resistance at $21,900, but does not break below $20,576, it will indicate that sentiment has changed from selling on the rally to buying on the dip. That could increase the likelihood of a break above $21,900.
The first sign of weakness will be a break and close below the moving average. If that happens, it would suggest that the current rise may have been a rally.
DXY
The US dollar index (DXY) is correcting in a strong uptrend. After touching a multi-year high of 110.78, the index has witnessed profit booking which has dragged the price to 20-day EMA ($108.64).
Although the rising moving averages indicate benefits for buyers, the RSI has formed a negative divergence, indicating that the bullish momentum may be weakening. If the price stays below the 20-day EMA, the next stop could be the uptrend line.
This is an important level to keep an eye on because a break and close below it could indicate a potential trend change. The index could then drop to $104.63. A break below this level may indicate that the index may have topped.
Conversely, if the price pulls back from the moving averages with strength, it would indicate that sentiment remains bullish and traders view the dips as a buying opportunity. If bulls push the price above $110.78, the rally could extend to $113.95.
The 20-EMA has turned down on the 4-hour chart and the RSI is in negative territory, indicating that bears have the upper hand in the short term. The index could fall to immediate support at $108.
If the price pulls back from $108 but fails to break above the 20-EMA, it would indicate that sentiment has shifted from buying on the dip to selling on the rally. That could increase the likelihood of a break below $108. If that happens, the index could start a deeper correction.
Contrary to this assumption, if the price goes up from the current level and breaks above the 20-EMA, the index could rise to $110.24 and then to $110.78. Buyers need to overcome this barrier to indicate resumption of the uptrend.
SPX
The S&P 500 is in a bottom formation and is trying to form a higher floor near 3900. The price retraced from the uptrend line, indicating that lower levels are attracting buyers.
The 20-day EMA ($4,050) is an important level to watch in the short term. If bulls drive the price above this resistance, it will suggest that the last part of the correction may have ended.
The index may then attempt a rally to $4,200. This level could act as a small obstacle, but if bulls overcome it, the recovery could reach the critical overhead resistance at $4,325.
This bullish view may be invalidated in the short term if the price breaks down from the 20-day EMA. If that happens, the bears will try to lower the price below the uptrend line. If they succeed, the decline could reach a large turnout of 3,700.
The 4-hour chart shows that the recent correction pulled the RSI into the oversold territory. It started a bounce, which reached the downtrend line. Buyers need to push the price above this resistance to indicate a potential trend change. The index may then rise to the 50-SMA and later to $4200.
Conversely, if the price breaks down from the downtrend line and falls below the 20-EMA, it would suggest that bears are continuing to sell on the rally. The bears will then try to lower the price below $3,886 and continue the downward movement.
Related: Bitcoin price cracks $21,000 as trader says BTC buys now ‘very compelling’
GC
Gold futures (GC) is in a downtrend, but it is trying to form a higher low at $1,700. The price has reached the moving averages, which act as strong resistance from the long week of the September 9 candlestick.
If the price declines from today’s level, it would indicate that sentiment remains negative and traders are selling on the rally. The bears will then make one more attempt to lower the price below $1,700 and challenge the crucial support at $1,675.
Conversely, if the price emerges and breaks above the moving averages, it would indicate that the bears may be losing their grip. It can push the price to the downward trend line. A break and close above this resistance may indicate that the downtrend may be over. That could start a rally to $1,825.
The 4-hour chart shows bears aggressively defending the overhead resistance at $1,737.40. If the price falls below the moving averages, the decline could extend to $1,700. That would suggest a range-bound action between $1,700 and $1,737.40 for some more time.
Alternatively, if price emerges from the moving averages, it would indicate that bulls are buying on minor dips. The bulls will then try to drive the price above $1,741. If they succeed, a rally to $1,774.80 is possible.
CL
Crude oil futures (CL) have been in a downward trend in recent weeks. Buyers tried to start a sustained recovery in August, but the bears defended the 50-day SMA ($94) on August 30.
The bulls tried to stop the decline near $85.73, but the level was broken on September 7 and crude resumed its downtrend. A less positive is that the bulls have not allowed the bearish momentum to pick up. This indicates buying at lower levels. The bulls are trying to push the price back above the breakdown level of $85.73.
This is an important level to keep an eye on because if the price holds above $85.73, it could catch more aggressive bears off guard. That could result in a short squeeze and the price could rise to the 50-day SMA.
Conversely, if the price goes down from $85.73, it will indicate that bears have turned the level into resistance. The sellers will then try to resume the downtrend by pulling the price below $81.20. If they succeed, the decline could extend to $70.
Crude Oil’s 4-hour chart shows a positive divergence on the RSI. This suggests that the negative momentum may weaken. Buyers have pushed the price above the 20-EMA and the breakdown level of $85.73, which is the first indication that selling pressure may ease. The rally could next extend to $88.
Alternatively, if the price does not hold above $85.73, the bears will try to lower the price back below the 20-EMA. If they succeed, the price could fall to $82.71 and later to $81.20.
The rally may not break the trend
Bitcoin’s recovery is largely driven by the pullback in the DXY and the rally in the SPX as shown in the analysis above. Both of these assets are heavily dependent on the Fed’s action in the next meeting, and that could dictate Bitcoin’s direction in the short term. Bitcoin bulls should continue to keep an eye on the DXY and SPX for confirmation of a bottom in Bitcoin.
The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trade involves risk, you should do your own research when making a decision.
