Ethereum’s volatility is linked to the dollar index
Trader Tardigrade’s technical analysis focuses on the inverse relationship between Ethereum and the US Dollar Index (DXY). Ethereum’s monthly candlestick price chart shows that the price structure is layered against DXY movements, with four major phases where peaks in the dollar coincided with the bottoms of the Ethereum cycle and the reverse dynamics also played out.
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A quick look at the chart shows that more often than not, downward trends in the DXY have coincided with upward trends in the Ethereum price. According to Perplexity AI’s explanation, ETH has one of the clearest inverse relationships to DXY in the crypto market, in some cases even more pronounced than Bitcoin.
Whenever the dollar strengthens, capital rotates into perceived safe assets and risky assets like Ethereum faced with selling pressure. On the other hand, when DXY weakens, liquidity conditions ease, and this encourages the influx into cryptocurrencies such as Ethereum. According to the analyst, DXY has now left long-term support and appears poised for further declines. The DXY is currently at 97.8 and weakening. That could spark a big rally in crypto, especially ETH, in the coming weeks.
Chart image of X. Source: @TATrader_Alan on X
AI Analysis: How Much of ETH’s Movement Does DXY Explain?
In the AI-powered explanation, Perplexity pointed out that the inverse correlation between ETH and DXY can explain approximately 40% to 60% of Ethereum’s volatility, especially during periods of monetary policy changes. That figure is always more important during rate hikes and news events, although there can be a lag of days to months depending on the catalyst.
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The historical table referenced in the analysis linked specific DXY highs to ETH turning points. For example, during the March 2020 dollar peak, Ethereum bottomed before starting a multi-month rally, while the DXY continued to fall to 89.
Another alignment was observed in 2022, when the dollar reached multi-year highs amid a broader phase of capitulation in risk assets. This in turn led to Ethereum creating a bear market low. If the current DXY breakdown continues, it could fuel inflows into Ethereum again.
The green projection arcs on the chart suggest that a continued decline in the dollar could open the door for a new expansion phase in ETH, with the price rising above $10,000. For Ethereum to rise above $3,000 again, that would be necessary confirmation of perseverance weakness of the dollar with improving on-chain and derivatives metrics.
Featured image created with Dall.E, chart from Tradingview.com
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