Keep Your Eyes on King Dollar

Louis Sykes
December 14, 2022

For the longest time, understanding this market has been a simple matter of following the correlations.

Crypto has acted as yet another short volatility trade, with Bitcoin, Ethereum, and other altcoins closely tracking US growth stocks.

And there's a firm inverse correlation to the US dollar, which up until recently had been a headwind for most of the year.

It's no coincidence that we've seen gains in US markets ever since the dollar cooled off.

But, like most aspects of technical analysis, it's important to step back and identify the broader trends at work.

Following this recent cooling off, the US Dollar Index $DXY rests on a dense zone of support around its 2017 and pre-pandemic highs.

It's hard to have much conviction, at least in the near term, while the dollar is holding above these levels.

If we see a rightful digestion of this recent leg lower, it's hard to think equities -- and, by extension, cryptocurrencies -- would hold up well if the dollar mean-reverts here.

Especially with sellers stepping up in the indices at notable zones of supply this week, I think we ought to monitor how the dollar reacts here.

Nothing wrong with waiting for confirmation.

In fact, paying a premium for confirmation always trumps swinging at low-conviction gambles.

So keep your eyes on King Dollar.

There'll be a wealth of information on how this move resolves.

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