On February 3rd, following a highly volatile weekend, the cryptocurrency market is attempting to find support within its current range. After a rapid decline from $85,000 to below $75,000, Bitcoin is now striving to establish a defensive baseline between $75,000 and $80,000. FXGT indicates that this stabilization attempt faces a significant obstacle: the US Dollar Index (DXY) is reawakening with its most robust posture in nine months. This "seesaw effect" often substantially suppresses the recovery potential of risk assets.
This explosive surge in the Dollar Index has garnered widespread attention. Data shows the DXY surged 1.5% to 97.60 within just two trading days, marking its most impressive short-term performance since the middle of last year. This movement is underpinned by a market repricing of the Federal Reserve's future policy path. The nomination of Kevin Warsh as the new Fed Chair, coupled with his deep-rooted "policy hawk" label, has caused markets to question previously aggressive rate cut expectations. FXGT believes that as hedging trades against currency depreciation begin to retreat, the appeal of dollar-denominated assets naturally rebounds, thereby significantly increasing the opportunity cost of holding non-dollar-based assets like Bitcoin.
The overall tightening of financial conditions is also casting a shadow over the market. Typically, a strong dollar implies rising costs for global credit flows, which directly weakens investor risk appetite. The upcoming US non-farm payrolls data will serve as the next key indicator. If the labor market demonstrates sufficient resilience, for instance with the unemployment rate holding around 4.4%, the dollar's recovery momentum will gain more solid macroeconomic support. FXGT states that in this context, relying solely on short covering in the futures market to push Bitcoin back above $80,000 faces substantial sustainability challenges.
From a market strategy perspective, this dollar rebound appears to have room to extend further. Although some policymakers have expressed a desire to lower benchmark interest rates, the restraint Warsh showed during his previous term as a Fed Governor suggests he is unlikely to support aggressive easing policies. This policy uncertainty premium is now being factored into the dollar's pricing.
In conclusion, Bitcoin's path to recovery is not straightforward, as shifts in the external macroeconomic environment are dominating the short-term price direction. FXGT believes investors should closely monitor the DXY's performance near the 98.00 level, as further dollar strength could trigger a secondary pullback in risk assets. Amid the current macroeconomic headwinds, FXGT advises maintaining operational caution and waiting for key macroeconomic data releases to identify clearer market signals.
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