As geopolitical tensions have risen in the Middle East, we’ve seen the Dollar Index ($DXY) rise to a 1-month high primarily from inflows to reduce risk on the mounting Middle East conflict and Wednesday’s stronger than expected ADP U.S. private payrolls data. This all comes following Federal Reserve Chairman Jerome Powell’s comments defending the 50-basis point cut decision.  Powell went on to mention that “current policy reflects growing confidence that strength in the labor market can be maintained in a context of moderate economic growth and inflation moving sustainably down to 2 percent.”  This decision-making process reinforces his dual-mandated long-term goals. 

 This morning, we saw the Initial Jobless Claims posting an actual of 225,000 versus the forecasted 221,000 causing the Dollar Index ($DXY) to rally.  While the Index is measured against a basket of six differing currencies (Euro, Swiss franc, Japanese yen, Canadian dollar, British pound, and Swedish krona), we can also find inverse correlations between other currencies and commodities.  One such inverse correlation is bitcoin and its futures contract (/BTC). 

We’ve seen the inverse correlation between the Dollar Index and Bitcoin futures (/BTC) strengthen very recently.  Through the first few months of this year the inverse correlation between $DXY and /BTC held steady until we saw bitcoin hit its current all-time-high on March 14^th at 74,415.  From that moment on the inverse correlation flipped and both $DXY and /BTC have been positively correlated with both currencies slumping, until recently.  Now that we’ve observed a mixture of Powell’s comments on future policy decisions, rate cuts indicating a FED pivot, and economic data supporting Powell’s dual mandate of maximum employment and price stability, the positive correlation between the pair appears to be trending again towards the inverse. The Dollar Index’s 4-day rally has lead to a /BTC 4-day selloff. 

Historically, it can be observed that a FED pivot and rate cut would weaken the dollar.  One such differential currently would be the port strike, led by the President of the International Longshoremen’s Association (ILA) Harold Daggett. The 36 ports on strike with an estimated 45,000 dock workers will impact U.S. GDP by rough estimate of 0.1 percentage points per week, or roughly 4.3 billion in lost exports and imports. 

 With the U.S. Balance of Trade deficit increasing month over month showing a recent negative 78.8 billion in July (reported on 09/04), we notice a heavy reliance on imports. One can use this data to deduce the impact of a port strike and its relation to the Dollar Index.  With less dollars flowing out to foreign countries, a prolonged strike could reveal a dollar shortage with import partners which would result in a higher demand for U.S. Dollars thus strengthening the dollar against other currencies. 

Looking at a daily chart of the perpetual Bitcoin Futures (/BTC), we notice a 4-day slump off a mid-year resistance level of around 67,000.  A series of lower highs starting with the all-time high on March 14^th signifies consolidation of the cryptocurrency. We notice the 200-day Simple Moving Average (SMA) acting as short-term support while the 50-day SMA has crossed below the 100-day SMA which can indicate a negative trend.  The 14-day Relative Strength Index (RSI) indicates a neutral reading at 47.9718.  Volume and open interest have tapered lower recently as well. 

According to the CFTC Commitment of Traders report released September 24^th managed money traders have decreased long exposure week over week by 2,441 contracts. 

Initial Jobless Claims 8:30 AM ET

ISM Services 10:00 AM ET

Factory Orders 10:00 AM ET

Minneapolis Fed President Neel Kashkari discussion with Atlanta Fed President Raphael Bostic 10:40 AM ET