Expectations are that Wednesday’s CPI data in the US will show a fall in inflation, which some traders expect may benefit risk-on assets like cryptocurrency.
Crypto prices barely budged on Monday with Bitcoin fighting to hold above the $30,000 support level. $32,000 remains the most stubborn hurdle at the moment with the technical set-up pointing to a possible pullback toward $28,000.
The good news is, crypto prices may start recovering if the US Consumer Price Index (CPI) data, which is expected to be released on July 12, shows declining prices, according to market analysts.
CPI Expected to Fall to 3% In June
The consumer price index, which measures price changes in a multitude of consumer goods and services, for the month of June is expected to drop to 3%. If this happens, it would be the lowest seen in the past 24 months.
The Wall Street Journal reports that core inflation, which excludes volatile food and energy prices, is expected to drop to around 5%, from 5.3% in May. Economic analysts think that core inflation could drop further in the coming months to between 3.4% and 4%.
WSJ: The US Labor Department is expected to report that overall inflation fell to about 3% in June, the lowest in two years. Excluding volatile food and energy prices, core consumer price inflation is expected to drop to around 5%, an 18-month low, from 5.3%. Economists think…
— Wu Blockchain (@WuBlockchain) July 9, 2023
CPI data that shows falling inflation will be a welcome statistic as it would, in some way, cause the Fed to lessen the hawkish stance it has held for a long time.
Market analysts almost unanimously agree that CPI data is the figure to watch this week, with trend-beating data likely to spark some last-minute volatility.
Financial commentator Tedtalksmacro appeared to agree with the WSJ report, saying that inflation “is expected to fall to 3.2% YoY, which would be the lowest print since March 2021.”
He posted the following charts on Twitter saying that core inflation was the main concern for the market and that he expected the “market gives it more weight in it’s reaction on Wednesday.”
Core CPI is expected to tick lower to 5.1% YoY, the lowest level since November 2021.
Core remains the concern for the market, and I’d anticipate the market gives it more weight in it’s reaction on Wednesday. pic.twitter.com/Nf1CekqqRr
— tedtalksmacro (@tedtalksmacro) July 9, 2023
For Bitcoin, TraderNJ, a Twitter crypto commentator said, “Liquidity remains above 32K” for the big crypto adding that he finds “it interesting being under the monthly open at this point. He added:
“I suspect price will chop around as we go into next week – CPI next Wednesday. My guess is inflation will come in lower but I don’t see the rate hikes stopping yet.”
Therefore, with the interest rates expected to rise again after the pause in May, traders wait to see how Bitcoin will react to the data.
According to Matthew Dixon, CEO of AI and ML-driven Crypto Ratings Platform, Evai, if inflation rates fall as expected, risk-on assets like Bitcoin and Ethereum may react positively.
If expectations are met for a sharp fall in inflation when #CPI data is released this week then we could see a very nice positive reaction from risk assets, #BTC #ETH & other #altcoins #Evai pic.twitter.com/dgcaOLwQMl
— Matthew Dixon – CEO Evai (@mdtrade) July 10, 2023
Meanwhile, the $32,000 resistance level remains a challenge for Bitcoin bulls. This level has suppressed the BTC price since the May 2022 crypto crash when it was turned down after reaching a high of $32,385, plummeting 45% to set a swing low at $17,550.
The most recent incident when this level proved hard to break for bulls was in April when the price dropped 20% from a high of $31,050 to $24,738.
The current technical setup points to a possible 10% drop if Bitcoin is unable to overcome overhead pressure from this supplier congestion zone.
At the time of writing Bitcoin was exchanging hands at $30,271 and was sitting on immediate support at $30,000. A daily candlestick below this level would see BTC drop toward the $28,000 defense zone where the 100- and 50-day Simple Moving Averages (SMAs) appear to merge.
This is where BTC’s downside could be capped for the time being. This would give the buyers time to regroup and buy more on the dip before staging another recovery.
BTC/USD Daily Chart
Supporting Bitcoin’s bearish outlook was the downward movement of the Moving Average Convergence Divergence (MACD) indicator with the recent call to sell Bitcoin still in play. This happened on June 6 when the MACD line (blue) crossed below the signal line (orange), suggesting that the market sentiment had flipped bearish.
Conversely, a positive reaction to the upcoming CPI data could provide the hindwings required to shatter the resistance at $32,000. If this happens, it would confirm a bullish breakout for the flagship cryptocurrency and the entire market would move with it.
The $35,000 and $40,000 psychological levels would be the short-term targets for the bulls on the higher side.
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