US Dollar Index Dips Below Critical Threshold: Is This The Moment for Bitcoin's Surge?

The US Dollar Index (DXY) has recently fallen beneath its 200-day moving average for the first time since November, signaling a noteworthy change in its direction.

In the meantime, Bitcoin (BTC) remains resilient above the psychological barrier of $90,000, shielding against any potential declines as the crypto summit approaches on Friday.

US DXY Falls Below 200-Day Moving Average

Over the past three trading days, the DXY has experienced a decline of over 3%. This notable drop has led it to fall below the 200-day MA, a decline not seen in more than three months. In trading terms, breaching support levels like the moving average typically points to weakening momentum, often interpreted as a bearish indicator.

The recent downturn in the DXY has sparked speculation surrounding the potential for bullish movements in various risk assets. Crypto analyst Lark Davis echoed this sentiment, asserting that a declining dollar alongside an expanding global money supply is supportive of digital assets.

Davis indicated that the U.S. government is aiming to establish a strategic Bitcoin reserve, which could further bolster positive sentiment around Bitcoin and the entire crypto market. However, he cautioned that short-term price fluctuations could still occur, despite the generally optimistic long-term forecast.

“However, it doesn’t mean things can’t get worse before they start getting better. Patience is key here,” Davis stated.

Historical Context: Can History Repeat Itself for Bitcoin?

Analyst Dan Gambardello referenced past cycles, noting a similar decline in the DXY that preceded a significant bull run for the crypto market.

“This DXY fractal might be the most important fractal in crypto,” Gambardello remarked.

He further noted that the current market fundamentals appear significantly stronger than those in earlier cycles. If history is any guide, both Bitcoin and altcoins may be on the brink of a considerable rally.

“Last cycle, this move triggered a parabolic bull run. This time, fundamentals are 100x stronger,” he added.

The weakening of the dollar can also be partially linked to former President Donald Trump’s trade policies. Trader and market analyst Mister Spread explained how Trump’s tariff strategies have applied downward pressure on the DXY, compelling the Federal Reserve to reconsider its monetary policy.

“His calls for ‘more rate cuts’ didn’t move the Fed much, so he’s using tariffs as an alternative strategy,” the trader suggested.

He clarified that tariffs create uncertainty in the economy, potentially hindering growth and resulting in the Fed cutting interest rates. Lower interest rates can diminish the attractiveness of the dollar for investors seeking higher returns.

From a technical perspective, professionals are keeping a close watch on the DXY’s key levels. What was once a support level at 105.3 has now turned into resistance. The next immediate short-term target is 103.7; should this level be surpassed, a decline towards the 99.6 mark could follow.

If the DXY drops below 99.6, it could trigger a more aggressive shift of capital towards alternative assets like stocks and cryptocurrencies.

An absolute rise in the M2 money supply globally also suggests a potential rally for Bitcoin. Analysts have indicated a strong correlation between M2 expansion and Bitcoin price, implying a significant movement could emerge by month’s end.

This trend aligns with historical patterns where a rise in liquidity within the financial system benefits risk assets, including Bitcoin. Yet, traders must continue conducting their individual research.

As of the latest updates, Bitcoin is trading around $91,293, showing a modest increase of 1.62% since the start of Thursday’s trading session.