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Source: Сointеlеgrаph

Bitcoin (BTC) suffered a weak rebound on September 21 and the US dollar jumped to a new yearly high as investors await today’s Federal Open Market Committee interest rate decision.

BTC Price Holds $19k Ahead of Fed Decision

The price of BTC managed to hold on to $19,000 with a modest daily gain of 1.33%. Meanwhile, the US dollar index (DXY), which measures the strength of the dollar against a pool of major foreign currencies, rose to 110.86, its highest level in twenty years.

Daily BTC/USD price chart against DXY. Source: Trading View

FOMC rate hike scenarios

The Federal Reserve is ready to discuss how much it can raise its benchmark lending rates to curb record inflation. Interestingly, the market expects the US central bank to raise rates by 75 or 100 basis points (bps).

The implications of higher interest rates are likely to reduce appetite for riskier assets such as equities and cryptocurrencies. Conversely, the US dollar will serve as a safe haven for investors fleeing risky assets.

“There seems to be no reason for the Fed to tone down its aggressiveness at the recent Jackson Hole symposium and [0.75 percentage point] A hawkish move should keep the dollar close to the highs of the year,” ING analysts told the Financial Times.

Independent market analyst PostyXBT argues that a 100 bps rate could “crash” Bitcoin below its current technical support of $18,800. He also suggests that BTC has a good chance of recovering if the rate hike is lower than expected, or 50 basis points.

These speculations echo the general expectations of rate hikes. John Kicklighter, chief strategist at DailyFX, notes that a 50 basis point rate hike would be bullish for the underlying US stock market index.

However, a 100 basis point rate hike would be extremely negative for the S&P 500. It could be just as problematic for Bitcoin, whose correlation with equities has been consistently positive since December 2021.

FOMC Policy Decision Scenarios for DXY and SPX. Source: John Kicklighter/DailyFX.

Polls expect a 75bp rate hike.

The US economy has experienced two consecutive quarters of negative growth. Moreover, its manufacturing PMI indicated the slowest increase in manufacturing activity since July 2020. Meanwhile, the 2-year US Treasury yield has outperformed the 10-year US Treasury yield, plotting the yield curve.

Related: What’s Next for Bitcoin and the Cryptocurrency Market After the Ethereum Merger Is Completed?

These indicators are sounding the alarm about an impending recession. But it’s offset by unemployment data at its all-time low and starting housing rates still above their $1.35 million danger zone, according to data released by Charles Edwards, founder of Capriole Investments.

In total, new private housing was put into operation. Source: FRED

Typically, recession warnings prompt the Fed to turn around. In other words, to reduce or suspend walking. But Edwards notes that the central bank will not change course because the US economy is not technically in recession.

“Unless serious recessionary fears surface, until the main thing — employment — suffers, there is no reason to expect an urgent change in Fed policy here,” he wrote, adding:

“So it’s business as usual until we have evidence that inflation is under control.”

Most economists, or 44 of 72 Reuters polled, also predict the Fed will raise rates by 75 basis points at its September meeting. Thus, Bitcoin could avoid a deeper correction if it maintains its correlation with the S&P 500 based on the Kicklighter forecast.

Bitcoin to $14k next time?

Technically speaking, Bitcoin could fall to $14,000 in 2022 if a fall below its current support level of around $18,800 triggers a head-and-shoulders crash.

Daily BTC/USD price chart with head and shoulders breakout setup. Source: Trading View

Conversely, a bounce off the $18,800 support level could see BTC price targeting $22,500 as an interim upside target, or 16.5% above today’s price.

The views and opinions expressed here are solely those of the author and do not necessarily reflect those of . Every investment and trading step involves risk, you should do your own research when making a decision.


Source: Сointеlеgrаph

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