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Bitcoin Outlook for the Week

Relevance up to 03:00 2022-07-27 UTC–4

Bitcoin continues to decline after the start of a new trading week. The asset has broken through the key $21.5k support zone, indicating an increasing chance of a decline below $20k. Part of the price decline is due to the growing pressure of sellers who are trying to take profits at the end of the trading week. Given the Fed meeting, there is no doubt that a significant part of investors are restructuring their positions and opening shorts. In other words, the market is starting to prepare for a likely 100 basis point hike in the key rate.

The main pressure on the price appeared after the opening of the American markets. Up to this point, the bearish volume has been negligible, and the price could return above $22k. However, it is now becoming clear that the growing pressure on the price will last at least until the announcement of the Fed’s results. The market is hoping for a moderate tightening of monetary policy and a 75 basis point rate hike. Otherwise, the market will face an unpleasant surprise and a further decline in quotes, down to a local bottom.

Given this, on the eve of the Fed meeting, several scenarios for the development of events can be considered. Everything will depend on the results of the meeting and the presence or absence of “surprises” from officials. If the meeting goes without excesses, and the rate is increased by 75 basis points, then we can count on a local upward spurt of Bitcoin, and consolidation above the level of $22.2k. It will open the way for the asset to retest $24.3k, and further growth in the direction of $27k-$28k. This scenario is likely, as the market has long known about the impending rate hike, and the tightening of monetary policy was built into the price of the asset.

The second scenario involves raising the key rate by 100 basis points. Analysts give 80% to this result of the Fed meeting. The probability of an aggressive increase in the key rate remains due to fundamental factors. The war in Ukraine continues, energy prices continue to fluctuate significantly, and inflation continues to rise. All these factors may provoke a preventive increase in the key rate. Given the negative fundamentals, the probability of a 100 basis point increase is rising, but the market is likely to react with a modest fall.

However, this is where the increased correlation between BTC and stock indices comes into play. In the event of such an aggressive rate hike, SPX and NDX will drag Bitcoin down. The S&P 500 stock index also halted growth after the formation of a bearish engulfing pattern. The stock market is also preparing for the likely consequences of the key rate increase. Despite this, the technical indicators of the index remain bullish. The stochastic oscillator forms a bullish crossover while the relative strength index and MACD remain upward. This indicates faith in a positive outcome, and a liberal decision by the Fed.

Everything that is happening in the market now is preparation for the Fed meeting. Trading volumes will decrease, and more and more large investors will open short positions. Breaking the $21.5k level directly indicates an increase in bearish sentiment. However, we see a local positive on the stock indices and the relative willingness of the market to raise rates by 75 basis points. Given the growing short volumes, a rate hike in line with the expected forecasts could trigger upward momentum and liquidate short volumes. As for the current situation, it is likely that BTC/USD will fall to the $20k level before the start of the Fed meeting to whip up bearish sentiment.

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.

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