CPI is about to be released, and Bitcoin's rally is underway
The Consumer Price Index (CPI) report, which will be released the day after the US presidential debate, is becoming the focus of the market. The current expectation is that the CPI will drop sharply from 2.9% to 2.6%, which may provide a reasonable basis for the Fed to cut interest rates by 50 basis points.
Given that the Fed's current interest rate range is 5.25%-5.50%, any interest rate above 3% is considered to be tightening policy, and the expected interest rate adjustment may be as high as 200 basis points. This view is also supported by the expected downward adjustment of the two-year Treasury yield, which is expected to fall by 160 basis points. Unless the CPI data remains above 2.9%, a 50 basis point rate cut is almost certain.
Previously, the market predicted that there would be as many as six rate cuts in 2024, but at the March FOMC meeting, Fed Chairman Powell emphasized that given the complex situation of inflation and economic growth, rate cuts require a more flexible strategy.
At the same time, he also admitted that it is becoming more difficult to achieve the Fed's 2% inflation target. Bitcoin hit an all-time high when the March CPI data exceeded expectations, but then fell sharply after the FOMC meeting, highlighting the critical importance of the next 10 days for the market.
Since the March meeting, inflows into Bitcoin spot ETFs have slowed. Although inflows have recovered in May and July, the average entry price of ETFs is still close to $60,000.
Currently, about $17 billion in inflows are facing a loss of $2 billion as Bitcoin's current price fluctuates around $53,000. This week's presidential debate may alleviate some of the uncertainty related to the election, but the upcoming FOMC meeting may further increase market volatility, and the Fed's concerns about downside risks to the economy are unsettling.
After a sharp drop last week, Bitcoin prices are looking for signs of a rebound. Currently, two of the three reversal indicators have recovered from oversold conditions, indicating that a rebound is expected in the short term.
Historical data shows that the stochastic indicator has reached similar levels when Bitcoin approached lows in the past three times, and this rebound may be inevitable.
