Bitcoin returns to the $19,000 level; Bull trap or the start of a new trend?

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The price of Bitcoin reached $19,104 yesterday, its highest level since the fall of the FTX exchange in the last 3 months. The compliance of the 6.5% inflation rate in December with market expectations was probably the most important reason for this. But can Bitcoin reach $20,000 or should we wait for another price correction? at the report He advises traders to be cautious in the current situation. In fact, investors should be asking themselves if yesterday’s spike in Bitcoin price is a bull trap or if it could really be the start of a new uptrend. Analysts recommend that you look at it from different angles to evaluate this issue.

The Federal Reserve sets the rules of the game

After the release of the consumer price index (inflation rate) data for December, the market’s attention is now focused on the next meeting of the Federal Open Market Committee, which will be held on February 1. A review of FEDWatch data shows that experts’ forecasts are very bullish. 94% expect the Federal Reserve to slow down interest rate hikes and this rate will only increase by 25 percentage points.

Bitcoin returns to the $19,000 level;  Bull trap or the start of a new trend?

CNBC and NBC News journalist Carl Quintanilla writes in a note referring to Fundstart Global Advisors’ analysis:

After a drop of 800 percentage points in one month, inflation has now fallen sharply by 59% of the components of the consumer price index… The bond market understood this very well. Inflation appears to have subsided from the perspective of the Fed and the majority of the public.

In addition, Fundstrat notes in its report the latest value of the Atlanta Federal Reserve’s wage growth index. The annual value of this index decreased to 5.5% in December, which was the lowest level since January 2022 (D1400). According to the financial firm, this data confirms that wage inflation has fallen sharply in recent months. In the end, Fundstrat concludes:

We believe that investors will increasingly come to the conclusion that the Fed can do its job of controlling inflation. This will cause inflation expectations to decline faster than EPS risk in 2023 as opposed to 2022.

Even Nick Timiraos, Federal Reserve spokesman and Wall Street Journal chief economic correspondent, tweeted yesterday that December’s consumer price index is likely to keep the Fed on track to raise interest rates by a quarter point. reduce the percentage

Timiraos also quoted James Bullard, president of the St. Louis Federal Reserve, as saying that considering all the youth, it is better to reach the maximum interest rate as soon as possible. But he also added

From a macroeconomic perspective, whether this is done in one session or several sessions probably doesn’t matter much. Until then, Bitcoin investors will probably just have to wait a little longer.

Will the Bitcoin price trend rise?

Certainly, the US dollar index (DXY) will be the most important indicator to start the upward trend of Bitcoin price. be We know very well that the price of Bitcoin has a very high inverse correlation with the trend of the US dollar index. When the US dollar index increases, the price of Bitcoin will take a downward trend, and when the dollar index decreases, the upward trend of Bitcoin will begin.

The same thing happened yesterday. While the dollar price index continued to fall, the price of bitcoin rose significantly. However, the US dollar index is at an important historical support limit.

From this perspective, it remains to be seen whether riskier assets like Bitcoin will end up in a bull trap or if the US Dollar Index will break below 101 on its weekly chart and turn its support line into resistance. If this happens, the price of Bitcoin will likely increase.

Bitcoin returns to the $19,000 level;  Bull trap or the start of a new trend?
Weekly chart of the US dollar price index

Alistair Milne, CEO of Altana cryptocurrency investment fund, also pointed to another important data in the weekly Bitcoin price chart and said:

Bitcoin price has diverged a lot from the relative strength index. When the relative strength indicator reaches the oversold range, it is historically an opportunity to pre-start an uptrend and end a bear market. See what happened in October and November 2015 and April 2019.

Bitcoin returns to the $19,000 level;  Bull trap or the start of a new trend?
Bitcoin price has diverged a lot from the relative strength index


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