Fed Pivot Boosts Bitcoin: End of Rate Hikes
Bitcoin’s Price Dynamics Post-Fed Shift.
Bitcoin’s flash crash seen on Monday was almost completely erased as soon as the Fed announced the end of the rate hike cycle and the upcoming rate cuts. The Federal Reserve’s more accommodating stance positively influenced Bitcoin’s value, helping its recovery from the mentioned drop, where it lost over 5% in less than 15 minutes. Currently valued at $42,650, Bitcoin has almost regained its value prior to the decline.
During Wednesday’s Federal Open Market Committee (FOMC) meeting, Federal Reserve Chair Jerome Powell indicated that the period of significant monetary policy tightening is probably coming to an end. He also mentioned that talks about reducing borrowing costs are moving “into view”. The Federal Reserve’s forecasts suggest a reduction of 75 basis points in the upcoming year from the present rate.
According to CME’s FedWatch tool, market data currently indicates a 14.5% likelihood of a rate cut on January 31, which is not a lot but that probability goes up to 61.1% for the March meeting. Either way, the Fed announcing the pivot is a good thing for Bitcoin and a dream come true for US Dollar bears.
Following the Fed’s recent policy change, the USD index (DXY) dropped to a multi-month low at 101.77 on Thursday, highlighting the continued impact on the dollar. A weaker dollar is beneficial for the BTC/USD uptrend, which recently started a much-needed pullback. The new Fed stance could be the catalyst that ends the retracement cycle and births a new leg of the bullish trend.
Chart Analysis – BTC/USD
The pair is currently trading at $42,650 and it looks like it is setting the stage for range trading between $45,000 and $40,000. Bitcoin came within an inch of $45K on December 8, marking the year’s high at $44,729 (data from Bitstamp). Three days later, on December 11, the pair dropped as low as $40,181 before bouncing higher and nullifying most of the losses.
The RSI was overbought for a long time and even showed bearish divergence. Adding the strength of $45,000 resistance and the fact that the pair spent a long while without a proper pullback, the stage was somehow set for a drop. A weaker dollar then helped the recovery but where to from here?
If the current bullish impulse fails to create a new high, then the pair will likely start to range, with the possibility of going below $40,000. The price has been climbing non-stop since mid-October when Bitcoin was changing hands at $27,000, so a deeper pullback may be in the cards.
