In a striking dual analysis, the financial charts paint contrasting futures for the US Dollar Index (DXY) and Bitcoin (BTC). Gert van Lagen, a technical analyst, has given a bearish forecast for the DXY, while at the same time highlighting a bullish stance for Bitcoin, which could see it aim for a target of $46,000.
DXY receives a kiss of death
The DXY has been in an uptrend since July, as evidenced by the blue ascending trendline on the daily chart. However, on October 9, this line was broken downwards, indicating a change in market sentiment. Van Lagen explains“The blue upward trend since July has also been broken. Time to move on.”
This sentiment is reinforced by the price action within the black channel from early October until recently, where a period of consolidation is visible, followed by a strong downward move. The DXY fell 1.2% to 104.92 last Friday, November 3 and is currently undergoing a channel retest, a common technical pattern where the price returns to the breakdown point before continuing towards the original direction.
A third bearish argument for the DXY is the rejection in the highlighted red zone on the chart, which indicates a high time frame Fibonacci resistance area. The Fibonacci retracement is a popular tool among traders to identify potential reversal levels. The DXY price action shows a “clear rejection” at this level, with the index trying to rise but being pushed back down, reinforcing the bearish stance.
Bitcoin price targets $46,000
Amid the DXY’s weakness, its inverse correlation with Bitcoin is becoming a point of interest for crypto investors. Gert van Lagen offers insight into Bitcoin’s potential trajectory, with a bullish pattern observed on the 6-hour chart.
“BTC [6h] – Bullish pennant in play targeting $46k. The pennant is part of the ascending channel shown,” van Lagen noted. The chart shows the consolidation of Bitcoin’s price into a pennant structure, a continuation pattern that signals a pause in a strong up or down trend before the next move.
The pennant is demarcated by converging trend lines formed by connecting the successive highs and lows of price action, converging to a point indicative of an impending breakout.
In this case, the pennant is following a significant uptrend, indicating that the breakout is likely to continue in a bullish direction. The ascending channel, marked by two parallel upward lines, encompasses Bitcoin’s entire bullish move on the chart, including the pennant formation. This channel serves as a guide to price development and indicates where support and resistance levels are currently expected.
Van Lagen’s analysis assumes a target price of $46,000 at the resolution of the pennant, a level determined by the height of the previous move that preceded the pennant, projected upward from the breakout point. The dotted lines on the chart illustrate the potential path that Bitcoin’s price could take after the breakout.
An important detail in Van Lagen’s card is the ‘Invalidation’ level marked below the pennant. This level at $34,103 is critical as it indicates where the bullish hypothesis would be considered incorrect and would serve as a stop-loss point for traders trading this pattern.
At the time of writing, BTC was trading at $34,625.
Featured image by Dmytro Demidko / Unsplash, chart from TradingView.com