The best strategies if the US dollar rebounds this summerFor several months now, the US dollar (DXY) has been under pressure against the major currencies, falling by over 11% since the start of the year. However, technical and fundamental signals suggest that a low point could be reached this summer. In this scenario, it is essential to measure the possible consequences on the markets and anticipate the best strategies to protect or boost your portfolio.
At this stage, the US dollar has not confirmed a major low, but it will eventually happen, so it's important to anticipate the consequences for all asset classes, and identify the best strategies to implement at an early stage, particularly on Forex.
In this new analysis in the TradingView columns, we ask a number of questions, including the impact on gold, the price of bitcoin and Forex vehicles for exposure to a possible rebound in the US dollar.
1) On the technical front, many of the bearish targets have been made
The first point to watch is the technical configuration. The DXY is now evolving on long-term support levels, with divergences indicating that the downtrend is running out of steam. Indicators such as the RSI and MACD show that selling pressure is weakening on the weekly timeframe. The monthly uptrend line is still active, although the signal varies according to the scale chosen. It's still too early to say that the US dollar has made its final low, but it's worth bearing in mind that most of the bearish technical targets in Elliott waves have been made.
2) If the US dollar were to rebound this summer, what impact would this have on gold and the bitcoin price?
Secondly, a rebound in the dollar would have a direct impact on other asset classes. Gold is influenced by several fundamental factors, notably its inverse correlation with the US dollar and the impact of GOLD ETFs, which are themselves closely linked to the underlying trend in the US dollar. Overall, we believe that if the US dollar were to rebound, gold would lose a good third of its bullish fundamentals. The table below summarizes the factors influencing gold's underlying trend.
Crypto-currencies, and Bitcoin in particular, could also be penalized by a stronger dollar and a contraction in global liquidity (M2). The US dollar plays a very direct role in the calculation of M2 global liquidity, and the bitcoin price is highly correlated with the underlying trend in M2 global liquidity. This indicator, which aggregates the money supply of the major economies converted into US dollars, generally acts on bitcoin with an average lag of around 12 weeks. The latest statistics show a new all-time high for this global liquidity.
This factor is helping to sustain the upward trend observed since April, despite a complex fundamental context marked by a Federal Reserve determined to maintain a restrictive monetary policy in the short term.
The US dollar, by strengthening or weakening, directly modifies the total value of M2 expressed in dollars.
This contributes to the extent of global liquidity and, consequently, to the evolution of bitcoin. Consequently, if the US dollar rebounds this summer, expect a bearish impact on BTC from this autumn onwards.
3) If the US dollar rebounds this summer, what are the best Forex strategies to consider?
Finally, on a practical level, there are several strategies to consider. On Forex, a dollar rebound scenario calls for monitoring major pairs such as EUR/USD, in order to identify selling entry points if a top is confirmed.
But the most direct and unleveraged way to gain exposure to the US dollar (DXY) is through ETFs. Should the US dollar rebound, then exposure to a US dollar (DXY) ETF may be a good strategy. Unlike futures and CFDs, there's no leverage, so it allows for better risk management.
We also suggest that you keep a close eye on the USD/CAD, USD/JPY and GBP/USD currency pairs in the event of a summer rebound scenario for the US dollar against a basket of major currencies.
We will continue to bring you regular analysis on the US dollar to determine whether or not a major low will emerge this summer.
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