Bitcoin surged higher on Tuesday on cues from a weakening US dollar market.

The greenback dropped to its lowest levels in two years, fueling a short-term rally across the safe-haven markets. Gold, for instance, jumped above $2,000 an ounce on Tuesday as investors hunted for safety against the falling fiat.

Bitcoin, on the other hand, came closer to testing $12,000, a psychological resistance level, during the early European session. It established an intraday high at near $11,957 before correcting lower on profit-taking sentiment among daytraders.

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bitcoin, btcusd, xbtusd, cryptocurrency
Bitcoin grows towards $12,000 for the first time in a week. Source: TradingView.com

Bull’s Eye

The upside move also came partially from the fears of rising inflation in the coming sessions. Bitcoin bounced back from $11,100 late last week after the Federal Reserve committed to tolerating inflation beyond its popular target of 2 percent. Traders perceived the news as a signal of extended periods of lower interest rates.

Near-zero lending rates have so far reduced the appeal of US Treasuries among investors. Many of them have started reallocating their portfolio to riskier assets. That has helped Bitcoin, as well as gold and US equities.

“Amidst unprecedented monetary and fiscal stimulus, investors are searching for ways to protect against an ever-expanding monetary supply,” acknowledged Grayscale Investments, a New York-based investment firm, in its August report.

“Because of Bitcoin’s unique qualities, we believe it can be leveraged as a store of value and as a way to escape this great monetary inflation.”

Bitcoin has soared more than 200 percent from its mid-March lows near $3,858 and touched a year-to-date high near $12,500 on August 17. The upside appeared amid massive stimulus aimed at aiding economies through the coronavirus pandemic.

Bitcoin Levels to Watch Next

BTC/USD is correcting lower after failing to test $12,000. It is a profit-taking sentiment that should not impact the pair’s long-term bullish bias. That is further visible in the series of support levels that are keeping Bitcoin from falling extensively to the downside.

bitcoin, btcusd, xbtusd, cryptocurrency
Bitcoin trade setup for this week. Source: TradingView.com

Those support levels are at near $11,800, the blued 50-hourly moving average wave, the redded ascending trendline, and the marooned 200-hourly moving average – all shown in the chart above.

A drop towards either of these levels amounts to a pullback should traders continue to count on the inflation worries. Meanwhile, a full-fledged breakdown risks crashing the price towards $11,200 or below.

Conversely, a continuation of the running uptrend sees BTC/USD testing $12,164 as its next upside target. A minor breakout above it would see traders enter a long position towards the $12,429-12,500 area.