- Investors must be cautious as they need to ensure that this price movement is the start of a new bull run, not a bull trap.
- Meanwhile, the US Dollar index (DXY) might be the most crucial indicator in determining BTC’s price action as it often has an inverse correlation with BTC’s price action.
BTC’s price at $20,942 (at the time of writing) has reached a 3-month peak following the release of the December 2022 consumer price index (CPI) data. The index coincided with analysts’ forecast of 6.5 percent. Initially, there was a cautious reaction from the market, with BTC retreating to the $17,900 level.
However, there was intense selling pressure from the bulls afterward, and BTC posted its largest 24-hour candle in more than half a year. Nevertheless, investors still need to be cautious as they need to be sure that this price movement is the start of a new bull run and not a bull trap. Hence, analysts suggest analyzing the BTC price movement using several data points.
The Fed’s next move is critical
With the release of December’s CPI data, attention now shifts to February 1, the next date for the Fed’s FOMC meeting. A recent FedWatch study suggests that analysts are highly optimistic with their projections. Ninety-four percent of these analysts predict that the Fed will no longer embark on aggressive rate hikes.
Hence, they forecast that the Fed will only raise rates by 25 bps (basis points). Famous CNBC journalist, Carl Quintanilla, referenced a Fundstrat global advisors’ study, which states that 59 percent of CPI indicators are in complete deflation, a surge of 800bps in 30 days. The Fundstrat study added that inflation has fallen short of the consensus and the Fed’s target.
The study also referenced the newest Atlanta Fed wage tracker. The 5.5 percent for the tracker in December was its lowest in 12 months. Hence, the financial firm noted that this tracker confirms the sharp drop in wage inflation over the last few months. Consequently, the Fundstrat study concluded that the Fed would become increasingly confident that it has curb inflation. Thus, 2023 might contrast with 2022, during which inflation forecasts failed faster than eps risks.
Furthermore, Nick Timiraos (the Wall Street Journal’s chief economics writer) tweeted on Friday that it is likely that the Fed will likely hike rates by 25 percentage points based on the CPI data for December. Timiraos validated his opinion with remarks from St. Loius Fed president James Bullard. According to Bullard, the best option is to hit the maximum rate in the shortest time possible.
However, he warned that this might not happen after one meeting. Nonetheless, BTC investors have more data points to analyze.
St. Louis Fed President James Bullard: All things equal, it would be better to get to the peak rate as soon as possible.
But he adds, "in macroeconomic terms, whether that's done at one meeting or another is probably not as important."
— Nick Timiraos (@NickTimiraos) January 12, 2023
The DXY is the most important indicator
Meanwhile, the US Dollar index (DXY) might be the most crucial indicator in determining BTC’s price action as it often has an inverse correlation with BTC’s price action. A rise in DXY often coincides with a BTC downtrend, while a drop in DXY usually coincides with a BTC rally. Yesterday’s data also proved this theory.
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While BTC was posting solid gains on Friday, the DXY was on a decline. However, if DXY should drop below 101 on the 7-day chart, which will turn its support into resistance, BTC will likely rally. In addition, a top-level executive of Altana Digital Currency Fund, Alistair Milne, shared another critical data point using BTC’s weekly chart.
According to him, BTC’s price displays a huge gap from the soaring RSI. Milne explained that “when the RSI on the weekly chart hits the oversold region, history shows that it indicates the end of a bear and the start of a new bull run. Check out data from October and November 2015 and March and April 2019.”
