With a possible 2.5% CPI figure due to be released later on Wednesday, the stage is being set for a potential 50 basis points cut in interest rates by the Federal Reserve a week from now. While a trend reversal to the upside for Bitcoin may not be imminent, it could now be baked into the cake for this last quarter of the year.
Lower CPI figure expected
According to the Kobeissi Letter account on X, the big U.S. banks are split in their predictions of either a 2.6% or 2.5% Consumer Price Inflation (CPI) figure, which will be announced later today. If inflation does come in at 2.5% or lower, this will be the lowest CPI figure since February 2021, and this will be excellent news for risk assets such as Bitcoin.
However, historically speaking, each time when the Fed pivot has taken place, this has anticipated some big falls in the market. Therefore, caution needs to be adhered to, at least for the short to medium term.
Bearish divergence for S&P 500
Source: TradingView
To back up this view, it can be seen on the weekly chart for the S&P 500 that bearish divergence is taking place, as prices rise, but the RSI and the Stochastic RSI are heading lower. If the divergence plays out, this could lead to a big correction in stocks, potentially putting a lot of downward pressure on Bitcoin and crypto.
Comparisons with Great Financial Crisis
In fact, if one goes all the way back to the pre Great Financial Crisis in 2007, the Federal Reserve cut rates for the first time on 18 September, the exact same day the Fed is expected to cut them this time around. What followed back then was the market bloodbath that came to be known as the Great Financial Crisis. The S&P 500 fell 57%, equating to a combined loss of nearly $1 trillion from the top 500 companies in the U.S.
All that said, this is a less likely occurrence on this occasion, as long as the S&P can maintain its uptrend. A lot of liquidity is due to enter the system over the next few months and into next year, as central banks go into overdrive and print the money needed to service the debts.
More consolidation for $BTC
Source: TradingView
Looking at the $BTC price in the short term time frame, it can be seen that the price escaped the descending channel and did manage to tag the big $58,000 resistance. However, bulls ran out of steam, despite another attempt at this level, and now the price has been rejected again.
Currently sitting on the $56,500 support, it remains to be seen whether this will break, which would see $BTC head down to $54,800, and possibly send a wick down to retest the top of the descending channel.
All in all, the outlook still looks like consolidation and accumulation, at least for the next week or so, as the weekly Stochastic RSI heads down to make a bottom. Once this indicator turns back up, this could herald the start of the next big swing to the upside - economic variables allowing.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
