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Dollar Index (DXY) Parabolic Rise Breaks Down as US Inflation Declines

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Dollar Index (DXY) Parabolic Rise Breaks Down as US Inflation Declines

The U.S. dollar index negatively correlates with traditional stocks and the cryptocurrency market. If the DXY has indeed already reached the macro top of this cycle, it is likely that Bitcoin has already recorded or is close to the macro bottom of an ongoing bear market.

The latest economic data from the United States shows that inflation in October 2022 fell more sharply than expected. This gives hope for U.S. consumers and is good news for the Federal Reserve (Fed), which has been trying to lower the Consumer Price Index (CPI) for months.

The U.S. CPI came in at 7.7% in October. This is 0.2% lower than the analysts’ consensus expectation of 7.9%. Moreover, it is significantly lower than the September 2022 inflation rate of 8.2%.On the long-term chart, we can see that the likely peak of inflation in the U.S. was in June 2022, when the CPI was 9.1%. It has been falling ever since, and it is possible that this trend will continue.

20 Years of U.S. Inflation Chart From U.S. Bureau of Labor Statistics
20 years of U.S. inflation / Source: www.bls.gov

Declining inflation also gives hope that Fed officials will now raise interest rates less aggressively, as their strategy seems to be paying off. At their last meeting, they raised interest rates by 75 basis points, which was in line with analysts’ expectations.

The base interest rate in the U.S. is currently at 4%, the highest level since 2008. Therefore, its increases are now expected to be less aggressive. What’s more, this should bring relief to stock markets and other risk-on assets, including cryptocurrencies.

Federal Reserve Funding Rate Chart Data From Trading Economics
Federal Reserve Funding Rate / Source: Trading Economics

The US dollar index parabola breaks down

Shortly after the release of U.S. inflation data for October, the U.S. dollar index saw a sharp decline. The DXY lost almost 2% within an hour (blue arrow), falling to a support area in the 108-109 range (green).

In the following hours, this area was not held, and the U.S. dollar index continued its decline today, with the current low at 107.3, a level not seen since August 2022.

Short-Term U.S. Dollar Index DXY Chart Data From TradingView
Short-Term DXY Chart / Source: TradingView

On the daily chart, we see that the U.S. dollar index may have just broken down from a long-term support line (blue). This parabolic curve was in effect from January 2021 and had a low of 89.2. Together with the slightly higher low at 89.7 reached in May 2021, the DXY generated a bullish double-bottom pattern (green arrows), which led to a 1.5-year-long bull market for the U.S. currency.

The first signs of a bearish reversal appeared even before the late September peak at 114.8. DXY began generating bearish divergences on the daily and weekly RSI.

Subsequently, the chart generated a series of 2 lower highs (LH) and 2 lower lows (LL). Currently, we see a clear breakdown from the parabola. With yesterday’s U.S. inflation data, its bearish validation and sharp rejection took place.

Long-Term U.S. Dollar Index DXY Chart Data From TradingView
Long-Term DXY Chart / Source: TradingView

The next areas of support for the DXY are the 104-105 range at the 0.382 Fib retracement and the 102 level at the 0.5 Fib retracement. A bounce at the former level could mean that the ongoing decline is just a correction. The U.S. dollar index will then likely rebound and form an even larger upward parabola. On the other hand, the loss of this area could mean the end of the upward cycle of the U.S. currency and a macro change in the global economic situation.

The same view is held by well-known trader and market analyst Bob Loukas, who presented his analysis of the U.S. dollar index in a tweet published yesterday.

He stated: “Looks like $USD has topped. Clean Cycle progression lower now. When near parabolic trends break like this, generally signals a major top.”

Looks like $USD has topped. Clean Cycle progression lower now. When near parabolic trends break like this, generally signals a major top.

Equities supporting this with today’s move.

Likelihood of an end to the #stocks bear market increased a fair amount. pic.twitter.com/fU2ZKFwYD5

— Bob Loukas (@BobLoukas) November 10, 2022

Bitcoin bounces back due to a negative correlation with DXY

Traditional markets and cryptocurrencies reacted very positively yesterday to the decline in the DXY. The SPX increased by 5.54%, while the NASDAQ gained 7.72%. Thus, both indexes closed at their highest since the second half of September 2022.

Major cryptocurrencies also saw big gains yesterday. Bitcoin surged 10.54% to regain the $17,000 level, Ethereum increased 17.82%, and Binance Coin 13.81%. So there is a clear correlation between the decline in inflation and the U.S. dollar index and the recovery in risk-on asset markets.

Bitcoin has a long-term negative correlation with the dollar index. There is an ongoing debate as to how much of this makes it a hedge against inflation.

If the U.S. dollar index has indeed peaked in the current cycle, it is possible that Bitcoin is close to generating – or has already done so at $15,588 – a macro bottom. However, if the DXY rebounds and resumes its post-correction rally, the cryptocurrency market — plagued by its own problems like the recent collapse of FTX — and BTC could face much lower prices.

Top Chart: Bitcoin Price in BLX
Bottom Chart: U.S. Dollar Index 
Data From TradingView
BLX Chart vs. U.S. Dollar Index Chart / Source: TradingView

For BeInCrypto’s latest Bitcoin (BTC) analysis, click here.

Disclaimer

All the information contained on our website is published in good faith and for general information purposes only. Any action the reader takes upon the information found on our website is strictly at their own risk.

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Bitcoin (BTC) Price Slips as US Labor Market Figures Hotter Than Expected

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Bitcoin (BTC) Price Slips as US Labor Market Figures Hotter Than Expected

Bitcoin fell 2% to around $16,800 after the Nov. 2022 U.S. jobs report revealed a strong labor market, despite the Federal Reserve’s six consecutive interest rate hikes in 2022.

Nonfarm payrolls increased by 263,000, beating the Dow Jones estimate of 200,000, while the unemployment rate matched expectations at 3.7%.

Jobs Report Signals Fed Hikes Are Likely to Persist

The gain in nonfarm payrolls came in slightly lower than the revised Oct. 2022 increase of 284,000, while average hourly earnings rose 0.6% compared to estimates of 0.3%.

The U.S. Bureau of Labor Statistics releases the nonfarm payroll and average hourly earnings at 8:30 E.T. on the first Friday of every month as part of the Employment Situation report.

While rising employment rates and wages generally point to a healthy economy, wages that grow too fast, especially in the presence of record levels of inflation, encourage the Fed to continue raising interest rates to ensure that the economy doesn’t run red-hot. 

“To have 263,000 jobs added even after policy rates have been raised by some [375] basis points is no joke,” noted Seema Shah of Principal Asset Management. “The labor market is hot, hot, hot, heaping pressure on the Fed to continue raising policy rates.”

Raising policy or interest rates cools economic expansion, but if done too aggressively, it could significantly curtail employment and pitch the economy into a recession. Recession fears generally create selling pressure on risky assets like cryptos and equities, driving prices into bear territory.

Cryptos ceded gains accrued earlier this week around a lower-than-expected Personal Consumption Expenditure Price Index of 0.2% for Nov. 2022. 

At press time, XRP was down about 2.5%, while DOGE fell 3.78%. Solana also declined by 1.1%. Equities markets also tanked, with the Dow Jones Industrial Average falling 0.9%, the S&P 500 1.2%, and the tech-heavy Nasdaq slid 1.5%. 

Crypto price heatmap
Source: Coin360

Elsewhere, gold is outshining Bitcoin as an inflation hedge and trading back at its price at the beginning of the year, $1,800 per ounce. By comparison, Bitcoin has fallen 63% in the same period.

Jobs Report and Inflation Still Likely to Influence Crypto Prices

The higher-than-expected Nov. 2022 nonfarm payroll number is the lowest jobs gain since April 2021, coming after a revised increase of 284,000 new jobs in Oct. 2022.

Nonfarm payroll increases in 2022
Source: TradingEconomics

The most significant adjusted increases in the nonfarm payroll were noted in the Feb. 2022 and July 2022 jobs report. The Feb. 2022 report revealed that nonfarm payrolls increased by 714,000 in Jan. 2022, prompting the Fed to step in with a 25 basis-point hike in March. 

The following four reports pointed to a cooling down of the labor market, which then picked up again in June 2022, when the Fed introduced its first 75 basis point hike of 2022.

On Nov. 30, Fed chair Jerome Powell noted that less aggressive rate hikes might be a distinct possibility at the next Fed meeting, although most analysts do not expect a drastic fall off from the last four increases of 0.75%. 

They predict that the Fed will increase interest rates by 50 basis points at the next Federal Open Markets Committee meeting in mid-Dec. 2022, taking the federal funds rate above the 4% mark. 

The Fed meeting will likely spark a rally in both cryptos and stocks if analysts’ estimates prove accurate.

For Be[In] Crypto’s latest Bitcoin (BTC) analysis, click here.

Disclaimer

All the information contained on our website is published in good faith and for general information purposes only. Any action the reader takes upon the information found on our website is strictly at their own risk.

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EU Parliament to ‘Vote on Adopting the Regulation on MiCA’ — Expert Says Industry Needs Legal Clarity

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EU Parliament to ‘Vote on Adopting the Regulation on MiCA’ — Expert Says Industry Needs Legal Clarity

In a recent statement, the European Parliament said its members would shortly “vote on adopting the regulation on markets in crypto-assets (MiCA).” According to the parliamentary body’s think tank, the envisaged regulations are expected to provide “legal certainty for crypto-assets not covered by existing EU legislation.” A crypto counselor, Paulius Vaitkevicius, said any regulation of crypto is likely to result in more capital and talent coming into the space.

‘Harmonized Rules’ for Crypto-Assets at EU Level

After months of discussions and negotiations which culminated in the June 30 preliminary agreement, the European Parliament (EP) is now set to “vote on adopting the regulation on markets in crypto-assets (MiCA).” The vote is set to take place during the legislative body’s plenary session. European leaders assert that the adoption of MiCA will lead to the creation of “harmonized rules for crypto-assets at [the] E.U. level.”

According to a Nov. 29 briefing by the parliament’s think tank, the harmonized crypto rules are expected to provide “legal certainty for crypto-assets not covered by existing EU legislation.” In the briefing, the EP also argues that the rules will not only enhance the protection of consumers and investors but will also “promote innovation and use of crypto-assets.”

Through MICA, European authorities also hope “to regulate [the] issuance and trading of crypto-assets as well as the management of the underlying assets.”

While European leaders like European Central Bank president Christine Largade are pushing for tougher regulation — MiCA II — some critics of the proposed legislation argue that the envisaged regulations in their current form may stifle innovation.

Legal Clarity Attracts Mature Players

Commenting on the European Union’s drive to regulate cryptocurrencies, Paulius Vaitkevicius, founder and crypto counselor at the law firm VILP Solutions, said the prevailing “Wild West environment” is not helpful to all parties. He also told Bitcoin.com News that without guidelines or regulatory frameworks “and with a number of situations where industry players collapse, we might end up in a situation where we will have only a handful of investors left in the industry.”

EU Parliament to 'Vote on Adopting the Regulation on MiCA' — Expert Says Industry Needs Legal Clarity

Therefore, to stop this from happening the crypto industry needs legal clarity, which according to Vaitkevicius, “bring[s] in more mature players to the industry from both project and investor sides.” Explaining why he is in favor of regulating the industry, Vaitkevicius said:

From my personal experience, such players have been seeking regulations and clarity already for some time and waiting for the right moment to step in properly. With regulations, we will see these firm steps and as a result additional capital and talent coming to the industry space.

Meanwhile, some crypto opponents have said if appropriate regulatory frameworks were already in place, Sam Bankman-Fried’s shenanigans would have been exposed much earlier. However, when asked about the validity of this argument, Vaitkevicius said the opinion that on paper FTX itself was “one of the most regulated players in the industry” undermines this theory. He added:

“Regulation is a good step forward, but [this] needs to be followed by other elements to be functional in real-life situations and achieve the pursued goals.”

What are your thoughts on this story? Let us know what you think in the comments section below.

Terence Zimwara

Terence Zimwara is a Zimbabwe award-winning journalist, author and writer. He has written extensively about the economic troubles of some African countries as well as how digital currencies can provide Africans with an escape route.

Image Credits: Shutterstock, Pixabay, Wiki Commons

Disclaimer: This article is for informational purposes only. It is not a direct offer or solicitation of an offer to buy or sell, or a recommendation or endorsement of any products, services, or companies. Bitcoin.com does not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.

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Uzbekistan Approves Rules for Issuance and Circulation of Crypto Assets

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Uzbekistan Approves Rules for Issuance and Circulation of Crypto Assets

Uzbekistan Approves Rules for Issuance and Circulation of Crypto Assets

The authority responsible for crypto oversight in Uzbekistan has determined the order of issuing and circulating digital assets in the country. The main reason behind the move is to establish a mechanism that would allow local companies to attract capital through coins and tokens.

Uzbekistan Government Sets Out to Regulate Digital Asset Investments

The National Agency of Perspective Projects (NAPP), under the President of Uzbekistan, has released a new regulation on the procedures for the issue, registration, and release in circulation of crypto assets in the Central Asian Nation.

The document provides basic legal definitions for crypto assets and makes distinction between the different types. It introduces requirements for crypto issuers, depositaries and custodians and determines their obligations, including those concerning relations with customers.

The authority has also approved rules for the establishment and maintaining of an electronic register of crypto assets and adopted accounting standards for the rights associated with them and those of their holders.

Crypto depositories will be responsible for providing services for the issuance, registration, circulation, and storage of crypto assets. Issuers can use them or other electronic platforms, the NAPP said, pointing out that the nominal value of the coins must be expressed only in the national fiat, the Uzbekistani som.

The agency emphasized that the issuance of unsecured tokens is prohibited. Using words such as “state,” “state-secured,” “state-supported,” “Uzbekistan,” “Uzbek,” “national,” and “som” in the names of the cryptos is banned. The regulator also clarified:

The main purpose of the adoption of this document is to create a new mechanism for business entities to attract investments and develop their activities by issuing and registering the issue of secured tokens.

The NAPP further warned against any unauthorized activities related to the circulation of crypto assets in the country or the use of services by providers that have not obtained a license to offer them. The same applies to firms involved in the mining of cryptocurrency.

Uzbekistan has been taking steps towards the comprehensive regulation of its crypto sector with several decrees signed by President Shavkat Mirziyoyev and resolutions by the National Agency of Perspective Projects. The country recently licensed two companies to provide exchange services.

Do you think Uzbekistanis will benefit from the new regulations adopted by the country’s crypto watchdog? Tell us in the comments section below.

Lubomir Tassev

Lubomir Tassev is a journalist from tech-savvy Eastern Europe who likes Hitchens’s quote: “Being a writer is what I am, rather than what I do.” Besides crypto, blockchain and fintech, international politics and economics are two other sources of inspiration.

Image Credits: Shutterstock, Pixabay, Wiki Commons

Disclaimer: This article is for informational purposes only. It is not a direct offer or solicitation of an offer to buy or sell, or a recommendation or endorsement of any products, services, or companies. Bitcoin.com does not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.

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