US Dollar hits four-month low as Bitcoin trader predicts 10% drop to come

Bitcoin (BTC $42,882) may enjoy a familiar tailwind in the coming weeks and even beyond if new macro forces continue to play out.

In a post on X (formerly Twitter) on Dec. 14, popular trader Crypto Ed, founder of trading group CryptoTA, eyed multimonth lows in United States dollar strength.

Bitcoin trader targets sub-100 DXY dive

Bitcoin and dollar strength have in the past exhibited inverse correlation. While this has decreased recently, changes to U.S. macro policy are now broadly seen to boost Bitcoin but pressure the greenback going forward.

As Cointelegraph reported, the week’s macro data prints, combined with encouraging signals from the Federal Reserve, have analysts pointing the way to further crypto market upside in 2024.

This is thanks to declining inflation potentially allowing for the Fed to “pivot” on interest rate hikes, increasing liquidity to the benefit of risk assets.

An asset not set to enjoy the aftermath of the switch is the dollar, which has declined precipitously this week as macro figures showed the impact of monetary tightening on inflation.

The U.S. Dollar Index (DXY) is down more than 2% since the start of the week, currently below $102 — its lowest level since mid-August.

Commenting, Crypto Ed joined those who are optimistic about Bitcoin while predicting further downside pressure on DXY.

“Long Term Outlook for DXY what will help BTC to teleport to new ATH's,” he wrote, referring to new all-time highs for BTC/USD.

DXY to $92.

U.S. dollar index (DXY) 3-day chart. Source: Crypto Ed/X

An accompanying chart earmarked key levels to look for on DXY in three-day timeframes.

Fed balance sheet creeps higher

On the topic of liquidity, economist Lyn Alden nonetheless argued that conditions were not yet ideal in terms of supporting a broad risk-asset renaissance.

“Global liquidity indicators started to stall a bit after their recent rise, and reverse repos haven’t drained in the first half of December, but today’s dovish Fed and drop in DXY potentially kickstarted a bit more liquidity,” she told X subscribers on Dec. 14.

Days later, Alden nonetheless noted a “pretty remarkable repricing” by markets looking at how the Fed might lower rates in 2024.

Data from the Fed itself shows its balance sheet increasing for the first time since August in December — by around $2 billion.

Fed balance sheet chart (screenshot). Source: St. Louis Fed

BTC/USD meanwhile traded at $42,700 at the time of writing on Dec. 15, staying comparatively flat after brief volatility entered the day prior. The pair remains up 13% in December, per data from Cointelegraph Markets Pro and TradingView.

BTC/USD 1-hour chart. Source: TradingView