Smart Traders Watch the Fed — Smarter Ones Watch the DollarHello Traders 🐺
In this idea, I decided to talk about the U.S. Dollar Index (DXY) — because so many people have been asking me:
“How do you predict the Fed’s moves, and how do they affect deflationary assets like BTC?”
My last idea was about BTC, where I explained why I believe a major bull run is coming — and part of that is because the Fed might soon shift back to QE.
But if you're trying to predict QE...
The first thing you need to watch is the U.S. Dollar Index, which reflects the strength of the U.S. Dollar.
So let’s break it all down:
🔍 Part 1: What Does the Fed Actually Do?
The Fed isn’t just a printer — it’s the U.S. central bank, and it has a dual mandate:
✅ Keep prices stable (control inflation)
✅ Promote maximum employment
That means the Fed doesn’t just want growth — it wants sustainable growth. No crazy inflation, no deep recession. Balance is key.
🧰 How Does the Fed Do It?
Through Monetary Policy, which is basically the toolkit used to control liquidity, interest rates, and economic behavior (like how much people borrow, spend, or save).
Let’s break down the main tools:
1️⃣ Federal Funds Rate
This is the most powerful tool the Fed has.
It’s the rate banks use to lend to each other overnight.
If the Fed raises the rate:
→ Loans get expensive
→ Spending slows
→ Inflation drops
→ But markets can crash
If the Fed cuts the rate:
→ Loans get cheaper
→ Demand rises
→ Growth accelerates
→ But inflation can surge
2️⃣ Open Market Operations (OMO)
This is how the Fed injects or removes liquidity using bonds.
Buys bonds → Injects money → 🟩 QE (Quantitative Easing)
Sells bonds / lets them expire → Removes money → 🟥 QT (Quantitative Tightening)
3️⃣ Reserve Requirements
This used to be a big deal — the % banks had to hold in reserves.
But since 2020, it's set to 0%.
4️⃣ Discount Rate
The interest rate the Fed charges banks directly.
A change here sends a strong signal to the markets.
Sometimes the Fed also works in sync with the U.S. government — using fiscal support like:
💸 Stimulus checks
🏢 Corporate bailouts
🧾 Tax relief packages
📈 So... Why Does the Dollar Index (DXY) Matter?
There’s a very clear inverse correlation between the DXY and BTC.
When the dollar gets stronger (DXY pumps), BTC usually dumps.
Why? Because rising DXY often means:
🔺 The Fed is raising rates
🔺 Liquidity is being pulled out
🔺 QT is in play
Let me show you some real chart examples:
📉 July 2014 — DXY pumped → BTC dumped hard
DXY Chart:
BTC Chart:
➡️ Just a 28% DXY pump → 80% BTC crash. Ouch.
📈 2017 — DXY dropped → BTC entered full bull market
DXY Chart:
BTC Chart:
➡️ A 15% DXY drop → Bitcoin bull run of a lifetime.
Now here’s the good news 👇
DXY is starting to look very bearish on the chart:
Combine that with the Fed shifting to QE, and guess what?
We're likely entering the early stages of another bull market.
If you read my last BTC idea, you already know what I’m expecting...
🚀 A massive run is just around the corner.
I hope you found this idea useful, and as always —
🐺 Discipline is rarely enjoyable, but almost always profitable 🐺
🐺 KIU_COIN 🐺
