The strengthening US Dollar has revealed both a direct effect and an inverse correlation with assets gold and Bitcoin. The Dollar Index (DXY) rose to 94.37 points, a 2.86% increase from the low of 91.68 points at the beginning of September.
In the recent development, the Dollar Index now trends above the daily EMA50 and it is likely to rise and test the downtrend line in yellow. If the US Dollar continues to appreciate, it would be one of the major factors pushing gold and Bitcoin prices down.
Johnson & Johnson has now initiated the phase 3 trial of the Covid-19 vaccine with up to 60,000 volunteers enrolled in the trial. Despite this being good news for humanity, it inevitably poses negative effects on safe-haven assets such as gold and Bitcoin.
The year-to-date (YTD) return for gold is at 23.13% with a one-month and one-week returns at -4.64% and -4.86% respectively. Bitcoin, the so-called digital gold, yielded 43% YTD return but slumped in the lower timeframe with -8.52% one-month return and -5.71% decrease in the past seven days.
The YTD return of Bitcoin still outshines that of gold, but with recent price actions, Bitcoin reacted to the market downturn much violently.
Bitcoin (BTC) Technical Analysis
Since the beginning of 2020, we can see that the $10,500 level has served as a formidable resistance level. However, with the price recently falling back below the local high, this poses a bearish signal. Despite the decent recovery since the mid-March sell-offs, Bitcoin rose to a new yearly high at $12,500 and since then has been rejected and now trending in a sideways consolidation.
In the short term, Bitcoin has another major support level at $9,900, breaking below this however, will flip the momentum into the bear’s favor. Expect Bitcoin to trade in a range-bound between $9,900 to $12,500. Nevertheless, be careful if Bitcoin begins to create a series of lower lows as it could result in a breakdown sending the orange coin back to a bear market.
Gold Technical Analysis
Gold had a similar bounce from the swing-low in March and continued to rally to its all-time high at $2,075 dollar/oz in early August. Since then, gold faced a serious profit taking sending its price down to create a descending triangle with a flat bottom pattern. Now, gold has broken down and flipped bearish with a Death Cross where the faster moving EMA crossed under the slower moving ones.
Note that the current price pattern of gold is highly resembling the 2018 Bitcoin’s break down from $6K level, which sent it spiralling downward to the multi-year low of $3,100.
The next support for gold is at $1,841. However, if the selling pressure continues along with the US dollar appreciation, gold could drop further to $1,767. To relieve itself from this, the price needs to break a chain of lower lows and start creating higher low then aim for a higher high.
Disclaimer: This analysis is the view of the author’s alone, and does not in any way represent trading advice. all traders should trade at their own risk.
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