The dollar index’s weekly chart is painting a pretty ominous picture for Bitcoin bulls. The 50-week simple moving average (SMA) is about to cross below the 200-week CMA, creating a death cross. As a technical pattern, this is a classic indicator of continued downside in the underlying asset.
The dollar index measures the greenback’s strength against a basket of other fiat currencies. Looking at the index today, we can see the kind of dangerous configuration that has in the past foreshadowed huge market surprise counter-rallies.
The last time the dollar index flashed a death cross was in January of 2021. This event was the bottom of around 90 before the dollar index started finding a bid in later months.
Despite the bearish signal, the dollar index eventually went on to increase steadily, reaching a peak of greater than 114.00 in September 2022. This historical precedent gives some reason to doubt that the upcoming death cross will lead to sustained downside for the dollar.
Surprisingly, the dollar index has already crashed by 10.78% through the first half of the year. That is a larger decline than 1992, which would be its worst performance since 1991.
Bitcoin bulls are in high spirits these days. In fact, they think that the broader U.S. dollar sell-off will continue to intensify in the second half of this year. They’re hoping that it will be the catalyst for the next major crypto bull run.
With a major death cross looming in the dollar index, traders would be wise to be on the lookout for traps. Illustrated above, in the past, the death cross has served as a contrarian signal, foreshadowing sudden dollar rallies.
