The Selloff in Crypto - Was that it?

If we exclude the increasing strength of the dollar for a moment and analyze the BTC chart exclusively, we might find further clues about whether or not this retest was sufficient, and in which direction the market will likely develop in the upcoming week.

From a Daily chart perspective, this retest was clearly sufficient. Price got absorbed in support, built a temporary rally, then retested this level again, this time forming a two-bar reversal which could be used as an entry long.

However, while this two-bar reversal has not yet been triggered, EMA 20 seemingly still acts as a resistance for the time being. Volume is generally weak. Ideally, we want to see increasing buy volume on rallies from support and diminishing volume on selloffs - but both did not occur.

Both the selloff from the $11,100 Lows and the following reaction to the temporary pullback have been quite strong, as indicated in the chart above. The lack of bullish volume and the strength of these selloffs are somewhat worrying, as it could indicate further (lower) retesting is needed. Note in the picture below, the strength of the breakdown, the complete lack of volume on the pullback, and the rejection at EMA bundle in the 4 Hours chart. Without further and violent strength of bulls, this rather looks like an additional breakdown needs to occur.

In a Nutshell

Most markets right now are totally reliant on the strength of the dollar and will continue to do so in the coming weeks and thereafter. The shortterm fate of crypto will largely be dependent upon further developments in the US Dollar Index, so this chart should be closely observed.

If the dollar continues to rise, the likelihood of BTC further breaking down increases significantly. On the other hand, if the resistance in the US Dollar Index is being respected, this might open the doors for a rally in BTC as the support has already successfully been tested. Which of the two scenarios will eventually unfold cannot be said at this time, as more data is needed - a battle that will occur in the upcoming week.

Bullish Scenario

With a successful trigger of the two bar reversal on Daily, we might see bulls coming back strongly with a break above the trendline as indicated below. Such break should occur with rapid movements to the upside with significant buy volume. A break above $11,200 High could open the doors to a renewed rally. However, given the current circumstances of the markets in general, I see this rather as a lower-probability scenario.

Bearish Scenario

Given the weak price action and the general conditions of the markets, the bearish scenario is of higher probability for the time being. In the case of a breakdown, another retest of the 10.5 - 10k support zone would be likely, where a new base of support and bullish price action with decent volume should form. In case this support does not hold this time, we would quickly enter dangerous territory.

Additional levels of interest would be the EMA 200 on Daily (currently at $9,836), the weekly trendline retest ($9,726) and the breakout point from previous rally at around $9,500. Trading below these respective levels will likely open the gates for a more serious and prolonged selloff.

Summary

Although the retest of support has been sufficient for the time being, there is more risk at hand, depending on the further developing of the Dollar Index. With the information currently available, no definitive call can be made, as the information needed will be provided with more price action, after markets have opened in the beginning of next week. Generally, caution is advised and it is imperative to develop action plans for both scenarios outlined.

Observing the development of the US Dollar Index will be critical for understanding global and crypto markets, so a close eye on this chart is definitely encouraged.

Stay safe, and have a great weekend,

EXTRACT OF THE ORIGINAL ARTICLE Strength of Dollar & Impact on Crypto

https://yoda.substack.com/p/strength-of-dollar-and-impact-on