The US Dollar Index (DXY) may continue to decline in the fourth quarter in line with the classic technical pattern known as the rising wedge. A bearish dollar outlook could push the price of Bitcoin (BTC) to new heights as it hovers above $62,000.
DXY braces for another 1.75% drop
Bullish wedges are bearish reversal patterns that start wide at the bottom but narrow when the price goes up. As a result, the trade area narrows, making the assembly unsafe. This usually causes the price to break below the wedge guide line and then drop by an amount equal to the maximum distance between the trend lines in the pattern.
DXY has formed a similar pricing structure since August. Moreover, this week’s decline in the index broke below the wedge support line, resulting in a bearish divergence towards 92.416, which is approximately 1.75% below the breakout level (around 93.98).
DXY daily price chart with a rising wedge setup. Source: TradingView
DXY reached an annual high of 94.563 a week ago, benefiting from fears of stagflation and the Federal Reserve’s decision to cut its $120 billion asset purchase program in November, followed by a hike in interest rates the following year.
But on October 19, the index fell to its lowest level in three weeks, indicating that money markets had followed through on the Fed’s cut decision. Instead, their focus has shifted toward policy normalization in other countries, including the UK, where analysts expect a 35bps rate hike by the end of this year.
Bitcoin soars on ETF FOMO
The price of Bitcoin found support from the weak dollar this week, as well as optimism about the emergence of the first exchange-traded fund (ETF) linked to Bitcoin futures on the New York Stock Exchange.
The BTC/USD pair is up more than 40% from the start of the month so far, reaching a five-month high of $62,987 on October 19. A small correction followed, but bitcoin held $62,000 as temporary support amid weak sentiment against the dollar.
BTC/USD daily price chart with a bullish channel. Source: TradingView
Technically, Bitcoin has reached a bullish depletion level in the area of the dominant ascending channel. With the Relative Strength Index (RSI) also overbought above 70 on the daily time frame, the cryptocurrency may undergo a temporary price correction with a short-term support target around $60,000.
But in the long-term, many analysts expect the price of Bitcoin to reach $100,000.
Tom Lee, co-founder of Fundstrat Global Advisors, said on October 18 that bitcoin futures based on total bitcoin futures will increase by more than $50 billion in the first year, adding that BTC could rise to $168,000 in revenue.
On the topic: Bitcoin price surges 50% as China bans “selfless” Bitcoin mining.
Jurrien Timmer, director of global macroeconomics at Fidelity Investments, noted that Bitcoin will be a six-digit asset by 2023, citing Metcalfe’s Law, which measures the value of the network based on its growth rate.
“Other technology innovations and even stocks like Apple — not that I’m a security analyst — went through the same process where sales grew 38 times in 10 or 20 years, and market capitalization increased 900 times,” Timmer told Yahoo Finance. :
“That’s massive growth. Based on these numbers, my models show $100,000 by 2023.”