Bitcoin Unlikely To See Notable Recovery After Brief Thursday Squeeze: Traders

Bitcoin (BTC) posted a dramatic rally late Thursday, defying the consensus of a continued slide in the wake of higher-than-expected US Consumer Price Index (CPI) data.

The leading cryptocurrency fell to a four-month low of $18,140 on major exchanges in a knee-jerk reaction to the data, only to rally back to $19,500, mimicking the crash and crash of US stock prices. they almost hit $20,000 a couple of hours before press time.

The unexpected post-data surge reportedly fueled by the liquidation of short positions or bearish trades has brought back “rocket emojis” on Crypto Twitter, a sign of renewed bullish sentiment.

Industry insiders, however, aren’t sure if the overnight recovery has legs.

“I don’t see any fundamental change in the state of the world that would suggest a sustainable recovery at the moment,” said Ilan Solot, a partner at the Tagus Capital Multi-Strategy Fund. “Both the macroeconomic and geopolitical outlooks remain very unfavourable, and there are no signs that the Fed can ease tightening anytime soon.”

Money markets now expect the Federal Reserve (Fed)’s ongoing interest rate hike cycle to peak near 5%, a significant upward revision from the 4.65% terminal rate quoted before the inflation data.

The markets have raised the estimate of the terminal rate to 4.9%. (Daily Take, Wall Street Journal)

According to ING, Wells Fargo and other investment banks, Thursday’s inflation data confirmed a 75 basis point (0.75 percentage point) rate hike at the Nov. 2 meeting.

“Broad-based price increases in basic utility categories, coupled with still buoyant labor market activity, suggest the Fed may bring rate hikes forward further than previously thought at the FOMC meeting in early 2019.” November,” CIBC analysts said in a note to clients. .

Therefore, the rebound in both stocks and bitcoin could be fleeting. The Fed has raised rates by 300 basis points this year, but core inflation, which excludes the volatile food and energy component, rose to a 40-year high in September. However, the so-called liquidity tightening has destroyed risky assets, including cryptocurrencies.

“The Fed is now expected to go higher than before in the CPI, which certainly indicates that this is another example of a bear market rally,” said David Belle, Founder of Macrodesiac.com and UK Head of Growth at TradingView. , adding that the “buy drop mentality remains ingrained.”

The Fed is now expected to raise rates more than before the CPI.  (David Belle, CME)

The Fed is now expected to raise rates more than before the CPI. (David Belle, CME)

Dip buyers have not had any success over the past three months, with rising bond yields offering a reality check for risky assets occasionally fueled by short covering or hopes of a shift from the Fed.

And bonds can do it again. The yield on the two-year US Treasury note, which is sensitive to rate hike expectations, rose nearly 20 basis points to 4.48% following Thursday’s CPI release and remained elevated near of 4.43% at the closing of this edition.

That’s a sign, the bond market doesn’t expect a significant change in Fed policy or inflation any time soon.

“I still can’t find a compelling case to buy into this [equity market] weakness and I have no intention of trying to ‘catch a falling knife’ anytime soon,” Michael Brown, head of market intelligence at Caxton, wrote in a daily market view, noting the post-CPI rise in yields. of the bonds.

“On the contrary, I remain bullish on the USD,” Brown added. The dollar index is one of the biggest enemies of bitcoin.

Stack Funds COO and co-founder Matthew Dibb said that bitcoin needs to clear higher resistance levels to confirm a change in trend.

Bitcoin's daily chart is showing a break above the 100-day SMA and the Ichimoku cloud is needed to confirm a trend reversal.  (Commercial view)

Bitcoin’s daily chart is showing a break above the 100-day SMA and the Ichimoku cloud is needed to confirm a trend reversal. (Commercial view)

Since mid-August, the bulls have repeatedly failed to secure a foothold above the 100-day simple moving average and the Ichimoku cloud.

“Resistance is defined by the daily cloud,” Katie Stockton, founder and managing partner of Fairlead Strategies, said in an email.

Therefore, it may be premature to call a bottom while these resistance levels are intact. Bitcoin changed hands at $19,590 at press time.

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