Correlation and Patterns: American Indices and Bitcoin
💲The Dollar Index ($DXY) is an index of the value of the US dollar against other currencies, which was created by JP Morgan in 1973.
The index is calculated as the ratio of the United States dollar (USD) to a basket of six foreign currencies and is a weighted average of the ratio of the dollar against the euro (EUR), Japanese yen (JPY), pound sterling (GBP), Canadian dollar (CAD), Swedish krona (SEK) and Swiss franc (CHF).
Thus, given the presence of the euro, the dollar index contains currencies represented by 24 states.
Correlation of the dollar index with Bitcoin
$DXY has a negative correlation with Bitcoin:
💰There are three scenarios for the behavior of the index and the reaction of BTC:
1. Scenario #1 - $DXY falls, $BTC rises.
2. Scenario #2 - $DXY rises, $BTC falls.
3. Scenario #3 - $DXY consolidates, $BTC grows.
Why is this happening?
The growth of the US dollar index causes a decrease in the price of assets in dollar pairs, while the fall and consolidation of the index causes assets in dollar pairs to strengthen, therefore, BTC begins to grow.
Application of the index in the trading system
You can analyze the US dollar index to predict the price behavior of various assets, including BTC.
The statistical relationship is strongest during periods of turbulence in global financial markets and almost absent during periods of price stability.
Against the background of uncertainty, the price dynamics of BTC behaves much worse than the stock market.
S&P500 and BTC are positively correlated:
1. S&P500 is rising, BTC is rising.
2. S&P500 falls, BTC falls.
But as we can see, sometimes there is a complete correlation, like now, when the stock market goes much ahead than bitcoin, so you can’t trade only on these indicators! Use this information only as an additional factor in making a decision.