Bitcoin Returns With a Vengeance Following Post-CPI Dip
Red-Hot Inflation Fails to Create New Lows. Is a Bottom in Place?
Thursday, despite higher inflation numbers posted by both versions of the CPI (headline and core), the crypto market made a dramatic recovery. The initial market reaction was “normal”: if the CPI exceeds expectations, then the Fed will increase the rate more aggressively and possibly for longer.
This means that risky assets will take a hit and safe-haven assets (like the US Dollar) will benefit. Hence, all pairs with USD as a quote (meaning that the USD is the second in the pair) will go down and all pairs with USD as a base (the first currency in the pair) will go up. And that’s exactly what happened… at first.
EUR/USD dropped to 0.9631 and BTC/USD dropped to 18,183. However, the drop was short-lived, and soon after, the market reversed and Bitcoin pumped to $19,447, which is more than 11.0% from low to high. Now, the question arises: Why did the market react that way, why did it climb despite unyielding inflation?
The answer is not a definitive one but it has to do with technical support, short covering, and low levels where basically people say “the worst has already happened, so there’s no place to go but up”.
As far as technical support is concerned, we can see that since June, BTC/USD has bounced several times in the zone between $18,000 and $19,000 (S/R levels are not exact price points but rather zones). That zone is established as good support.
Short covering means that traders with short positions are closing them to take profits or protect themselves from market upswings. With the RSI oversold on the lower timeframes and an extended move south, it’s understandable that many traders have decided to close their shorts. And considering that short positions are closed with a buy, all those sellers suddenly became buyers when they decided to take a profit (close their sell positions).
Technical Outlook
Once again, Bitcoin is struggling to surpass the key level at $20,000 but during yesterday’s wild swings, the apex cryptocurrency added more than 11% to its price (measuring from the lowest point to the highest). This massive climb calls for a retracement, which means that we will probably see the price come down before it attempts a true break of $20K.
On a Daily chart, we can see that BTC/USD is bumping into the 50-day Moving Average, which combined with the level at $20K, will provide strong resistance. The upper Bollinger Band is also in close vicinity, further strengthening the probability of a bounce lower.
Given the latest bullish impulse, the retracement may be followed by a move above $20,000 but let’s not forget that the fundamentals (high inflation, high rates) still favor the short side.
