Bitcoin (BTC) seems ready for a rally with the start of the new year but there is one small catch. The action of the price of Bitcoin (BTC) is very dependent on the prospects of the EUR / USD in the future. During times of uncertainty, this is what happened. Bitcoin (BTC) is still a very speculative asset in emerging markets. The movement during the critical points is the reaction of the EUR / USD price. We have observed this correlation several times in the past and it is very reasonable to expect it. The price of Bitcoin (BTC) is paired with the US Dollar (USD) in many large exchanges which is why it makes sense to see Bitcoin (BTC) rise because the Dollar (USD) falls.
The outlook for EURO in the next few weeks is not very promising. In fact, as the daily chart for EUR / USD shows, the price is currently trading in a triangle and a wedge falls at the same time. It also touches the top of the triangle as well as the falling slices at their intersection which coincides with the Fib level of 38.2%. This makes it more difficult for EUR / USD to break through this strong resistance meeting. A more likely result at this point seems to be an upcoming retracement back to the 21-Day EMA which will give the price of the strength to hold a successful rally to break this resistance. Nevertheless, if EUR / USD breaks out and closes below the 21-day EMA, we can expect to see further decline.
In the case of a break below the triangle, we will see the price settling at the bottom of the falling wedge. Both EUR / USD and Bitcoin (BTC) are now approaching overbought territory on a daily time frame. This is a worrying sign that further reduces the possibility of a breakout that successfully passes resistance. That being said, RSI is a consequence of price action and not vice versa. So, it would not be surprising to see EUR / USD and Bitcoin (BTC) rally even under overbought conditions. It is important to note that the rally will be followed by a significant correction to the downside before prices can continue to rise.
The weekly outlook for EUR / USD may not look good but the 4H chart for BTC / USD tells a different story. We now see head and shoulder formations upside down in the making. We have seen results of such a formation in a bullish break in BTC / USD a lot of time in the past. If this IH & S is paying off, we tend to see the price of Bitcoin (BTC) rally to $ 5,200 to say the least. The price is currently oversold short term and certainly has room for a breakout in the coming days. That being said, investors don't have to rely on anything decisive before we have a clear direction for EUR / USD.