On Monday, Bitcoin (BTC) made a slight rally and approached the $31,000 level once again. The financial markets are preparing for the release of crucial US inflation data on Wednesday, which has the potential to significantly impact them. Meanwhile, trading conditions in the broader financial markets were relatively calm on Monday.
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On Monday, analysts attributed the increase in BTC price to deflationary producer price index numbers from China. This is said to be exporting deflation globally and aiding central banks such as the Fed, ECB and BoE in their fight against inflation. Additionally, positive forecasts from Standard Chartered, bullish commentary from the BlackRock CEO, US dollar weakness, and BTC buying above support in the form of the 21-Day Moving Average were also contributing factors. However, BTC was unable to sustain a push above the $31,000 level, remaining within the $29,500-$31,500 range it has been trading in for almost three and a half weeks.
The BTC price saw an increase from under $25,000 to the $30,000/$31,000 range in June due to optimism surrounding spot bitcoin exchange-traded fund (ETF) applications from Wall Street heavyweights like BlackRock and Fidelity. However, the recent hawkish tone of the US Federal Reserve regarding the need for further rate hikes has kept the bulls at bay.
During its last meeting, the bank indicated that two more rate hikes are likely, taking interest rates to 5.50%-5.75%, due to stickier-than-expected inflation and a robust US labor market. This weekend, three Fed officials expressed their support for further tightening, which likely discouraged any bitcoin buying above $31,000 on Monday.
The upcoming US inflation data could have a significant impact on the market's expectations for further Fed tightening and, therefore, the bitcoin price.
Bitcoin nears $31K ahead of US inflation data – BTC price direction uncertain. Here is Where the Bitcoin (BTC) Price Could Be Headed Next
Based on the CME's Fed Watch Tool, money markets suggest that there is a high probability (near 100%) of the central bank increasing interest rates by 25 bps this month, resulting in a range of 5.25-5.5%. Despite the Fed's indication of two additional rate hikes, money markets only anticipate a 40% chance of a second rate hike being implemented by the November meeting. Bitcoin nears $31K ahead of US inflation data – BTC price direction uncertain.
The Consumer Price Index report released on Wednesday could lead to a shift in pricing, with the possibility of two rate hikes instead of one. If the report shows a drop in headline CPI to 3.1% YoY and core CPI to 5.0% YoY, bitcoin may quickly drop to sub-$30,000 levels. On the other hand, if there is a downside surprise, particularly in the core CPI metric, it could lead to a market reaction that sends bitcoin to fresh year-to-date highs above $31,500. This would reflect markets pricing out the likelihood of the Fed going through with its guidance for two more interest rate hikes. Key levels to watch are a break below $29,500 support and a break above $31,500 yearly highs, which could lead to a push higher towards the next major resistance zones around $32,500, $33,000 and $34,500. Any drop to the $28,500 support area may be taken advantage of by longer-term dip-buyers, with bitcoin in a clear uptrend for 2023.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
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