King dollar bitcoin shines

Dollar upswing continues, but for how long?

One thing that never changes in FX, is that you need to be careful when the market has extreme positioning.  The weaker dollar trade never unfolded at the start of the year and now currency traders are unsure how much longer the greenback’s strength can last.  US growth exceptionalism is driving the move in the bond market and eventually that trade should stabilize. Much of the dollar’s fortunes will depend on how well the US economy performs. Infrastructure spending would be the ‘icing on the cake’ for the cyclical rotation trade.  Republicans will have to decide, do they want to win some political capital and help the Democrats get infrastructure spending done over the next couple of months or watch Democrats do it alone late in the year with the budget conciliation process.

I don’t think anyone doubts the Fed can do more and is on standby right now.  If Treasury yields continue to skyrocket, that would tighten financial conditions and easily trigger Fed action.  Interest rates are anchored and eventually when the eurozone has improved growth prospects, the dollar can resume weakness.  The euro’s slide to the greenback is intensifying but could start to see some technical support emerge around the 1.1800 level, with the 200-day SMA.  The 1.1765 level should provide major support and possibly be an attractive spot for some longer-term bets to scale into the euro.

Bitcoin

Bitcoin and ethereum bullishness are back as more big-money bets keep flowing into cryptocurrencies.  Institutional interest still seems strong as NYDIG raised USD200 million from strategic partners for Bitcoin-related strategic initiatives, Aker’s Seetee company announced a big bet on bitcoin, and as a Chinese photo editing app, Meitu acquired USD40 million worth of bitcoin and ethereum.

Bitcoin seems to have its groove back, but many cryptocurrency traders are starting to prefer ethereum following their massive network upgrade and as they capitalize on growing demand for NFTs.

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