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From a fairly comfortable expectation of another Fed rate cut in December, the market has reacted negatively to Fed Chairman Jerome Powell's remarks on Thursday, hinting that a December rate cut may not be forthcoming. Stocks fell on the news, and Bitcoin ($BTC) suffered a dip before staging a recovery early on Friday.
Fed Head talks markets down
With a higher inflation figure having raised its ugly head recently, the Federal Reserve’s balancing act has become even more acute than ever. Fed Chairman Jerome Powell has reacted to this by making hawkish comments at a conference on Thursday, saying:
"The economy is not sending any signals that we need to be in a hurry to lower rates,"
The chairman of the Federal Reserve maintained his view that the U.S. economy was strong, and that any decisions on rate cuts, or otherwise, would be taken “carefully”.
When the comments were made, the Fedwatch tool on the CME Group website went from a rate cut expectation of around 80%, down to 58%. However, this has now gone back up slightly to sit at 62.4% currently.
Stock markets fell on the news, with the S&P 500, and the Nasdaq, both ending the day around 0.6% down.
Third-largest outflow for U.S. Spot Bitcoin ETFs
In addition, quite possibly also in reaction to Powell’s comments, the U.S. Spot Bitcoin ETFs experienced a sharp outflow on Thursday of 4.45K $BTC, which is the third biggest net outflow since these ETFs were launched at the beginning of this year. This comes on the back of huge net inflows over the last several days, and possibly signals that the U.S. Spot Bitcoin ETFs are somewhat sensitive to price action in the spot market.
A shallow retracement for Bitcoin
Source: TradingView
The short-term time frame chart for $BTC shows that it’s pretty much business as usual. This recent swing down has actually been rather shallow - only going down as far as the 0.236 Fibonacci. The retrace also retested the top of the trendline from the small bull flag that was formed from Monday through to Wednesday.
As can be seen, the major resistance is from the ascending trendline that starts from the first peak of the 2021 bull market. Given its significance, this is probably why the $BTC price is struggling to pierce through it and hold above.
A reason for optimism that this will break soon is that the Stochastic RSIs for the short term time frame are all at, or reaching, the bottom. Once these start rising again, this will signal that price momentum will be to the upside once more.
Possible bearish clouds on higher time frame
Source: TradingView
The significance of getting above the ascending trendline can be seen in the weekly chart above. If $BTC can close a candle body above the trendline at the end of this week, this would likely lead to further upside price action.
The Relative Strength Index (RSI) on this time frame shows the indicator line just poking its head above the 70.00 level, which has been strong resistance in the past. This is signalling that buyers are dominating the market. However, the indicator line has quite a way to go still to get above the previous high, in order to avoid bearish divergence.
In addition, one must also look all the way back to the high made in 2021. Here the RSI rose to a level of 94.70. This will also need to be surpassed in order to avoid a potential future massive bearish divergence.
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.
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