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Bitcoin begins to deal with fresh U.S. macro cues as BTC price steadily holds $17,000 support.
Bitcoin (BTC) fell on the Dec. 9 Wall Street open as United States economic data appeared to disappoint markets.
BTC/USD 1-hour candle chart (Bitstamp). Source: TradingView
Attention turns to Bitcoin vs. CPI “big trigger”
The pair reacted badly to U.S. Producer Price Index (PPI) data, which despite being above expectations, still beat the readout from the month prior.
“Bit of an over reaction towards PPI, which has been dropping significantly from last month, but less than expected,” Michaël van de Poppe, founder and CEO of trading firm Eight, responded.
Van de Poppe, like others, noted that the crux of macro cues would come next week in the form of Consumer Price Index (CPI) print for November.
“CPI next week is the big trigger, just like it was earlier this month,” he added.
CPI could be a seminal point, trading firm QCP Capital continued, as if it were to continue its downward trend, markets may get an even stronger conviction over lower inflation greeting the new year.
The Federal Reserve’s Federal Open Market Committee (FOMC) meeting days later, where policymakers decide on interest rate hikes, should add fuel to the fire.
“Tuesday’s CPI will yet again be ‘the most important CPI release ever,’ this time because the market has set it up to be with its epic 2-month short squeeze rally,” QCP wrote in a market update on the day:
“At the FOMC, Fed members will release their updated projections of inflation and interest rates. Markets will focus on where they forecast inflation next year, as well as where they see rates in 2023 and 2024. Both these events are the last remaining hurdles for the rally into year-end.”
Analysts acknowledged that if CPI were to disappoint, it would potentially “invalidate” the stocks’ rally so far. A 50-basis-point rate hike had a 77% probability of occurring, according to CME Group's FedWatch Tool.
Fed target rate probabilities chart. Source: CME Group
U.S. dollar catches a break
U.S. equities were flat after the first hour's trading, with PPI failing to make a significant dent in performance.
For macroeconomist and stocks analyst James Choi, this was to be expected, given that the Fed was already considering decreasing the pace of its rate hikes.
“The FED already pivoted its course. Today's PPI won't make a dent to Powell’s plan. It's 50bp next week, then that's it,” he forecasted, also saying that his calculations predicted a “much, much lower” CPI reading than many believed.
Meanwhile, the U.S. dollar strength also simmered, the U.S. Dollar Index (DXY) attempting to make up for the previous day’s lost ground on the back of PPI.
U.S. dollar index (DXY) 1-hour candle chart. Source: TradingView
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