Bitcoin started the new trading week with a significant drop to the local support zone near the $41k level. By the end of Monday, the cryptocurrency managed to stabilize near this support area, but no recovery of quotes occurred. Cryptocurrency market volatility has significantly decreased ahead of the release of key macroeconomic indicators, such as inflation data and the Fed's decision on interest rates.
Despite overall positive macroeconomic indicators, there is no reason to believe that Bitcoin will show a substantial increase in quotes after the data is published, according to investor expectations. The BTC market remains "overheated," and therefore, traders' reaction may be unpredictable, even with positive developments. The asset may either resume an upward movement to $45k or undergo a retest of the $40k level. Therefore, a detailed analysis of the situation is crucial before trading on the news.
Contrary to expectations of an increase in unemployment in November, the main report showed a decrease from 3.9% to 3.7%. Meanwhile, the wage index accelerated to 0.4%, surpassing forecasts of 0.3%. These data came as a surprise to analysts who anticipated more positive results, leading to disappointment and selling in the market.
By the end of trading on December 8, traders adjusted their inflation expectations to a level of 3.1%, lower than the October figure of 3.2%. This led to a painful market reaction as the DXY index rose to 104 points, affecting the value of investment assets, including Bitcoin, which fell to $40,700 a few days later. Therefore, if the indicator turns out to be at or above forecasts, further declines in the value of BTC and other high-risk assets should be expected.
Federal Reserve Chairman Jerome Powell stated that the Fed would make decisions based on incoming data, and there is a hypothetical possibility of raising rates at the December meeting. However, according to the CME FedWatch Tool, 98.4% of traders expect the current key rate to be maintained regardless of inflation data. In such a situation, it is essential to pay attention to Powell's statement after the meeting, where a potential policy adjustment based on updated data will be announced.
It is worth noting that key players in the U.S. financial markets, such as Goldman Sachs, are extremely optimistic about the Fed's monetary policy. The bank's analysts believe that the regulator will implement two rate cuts in 2024, and optimistic expectations about this are already filling the market. Considering the significant increase in consumption levels in the U.S. in November, inflation may rise, potentially triggering a sharply negative investor reaction, including in the cryptocurrency market.
As the cryptocurrency market is expected to experience a significant increase in volatility over the next two days, technical analysis takes a back seat. The primary tool for price action in this scenario will be pending orders placed outside the main price fluctuation range. After the drop in BTC prices, this range has formed within $40.5k–$42.5k, and it is beyond this zone where traders should "catch" movement using pending orders.
Concerning more fundamental analysis, it's worth noting the clear formation of a trend reversal pattern, the "double top." The neckline around the $42.8k mark was successfully breached, providing grounds to anticipate a local trend change in Bitcoin. It's also plausible that the price will resume its upward movement to form a third peak, but in such a case, a retest of the $42.8k level will be needed as the current pattern will lose its relevance.
Inflation data and the Fed's decision on interest rates are the main macroeconomic factors influencing the price movement of BTC/USD. Market volatility is expected to increase significantly over these few days, so relying on technical metrics and other aspects of technical analysis might not be sufficient, as the market will be subject to emotions. The probability of strong price movements is quite high, considering that crypto investor sentiments have reached a local peak, and, therefore, the likelihood of movement to $45k or $40k is quite significant.
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