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The correlation between the ETH/BTC pair and the US Dollar Index (DXY) has intensified as market participants anticipate the Federal Reserve’s rate decision in September. Ether, the native cryptocurrency of the Ethereum network, has declined by approximately 25% relative to Bitcoin since the beginning of 2024, reaching its lowest level in 40 months. The outlook for Ether appears bearish in the near term, particularly as expectations grow for Federal Reserve interest rate cuts in September.
A notable factor contributing to {Ethereum} (ETH) bearish outlook is the strengthened positive correlation between the ETH/BTC pair and the DXY. As of August 26, the 30-day average correlation coefficient between ETH/BTC and DXY stood at 0.78, a significant increase from 0.10 at the start of the year. This shift indicates that traders are increasingly moving away from Ether and favoring Bitcoin, especially as the US dollar weakens against a basket of major foreign currencies.
Several factors have driven this capital rotation from Ether to Bitcoin. The launch of Bitcoin-focused spot exchange-traded funds (ETFs) in January 2024 has attracted substantial inflows, amounting to $17.86 billion. In contrast, recent Ethereum ETF launches received a modest response, resulting in significant withdrawals totaling $465 million. Additionally, the Grayscale Ethereum Trust (ETHE) has reported considerable outflows, totaling $2.53 billion, which has further dampened enthusiasm for Ether relative to Bitcoin.
On August 23, the US Dollar Index fell below a long-standing horizontal support level following a dovish statement from Federal Reserve Chair Jerome Powell at the Jackson Hole symposium. Market analyst Elja Boom identified this decline as aprecursor to further depreciation of the dollar, supported by a Bearish Gartley pattern suggesting a downward trend.
Given the strengthened correlation and the formation of a V-top pattern on shorter timeframes, the ETH/BTC pair may experience a decline in September. The V-top pattern, characterized by a rapid rise followed by a steep decline, suggests a drop to 0.0396 BTC if support at 0.0427 BTC is breached. Conversely, a rebound from this support level could lead to a rally toward the 0.0469 BTC level by September.
