Key Week for Bitcoin and the Dollar Index
As we delve into the financial week of September, notable attention falls on Bitcoin (BTC), the premier cryptocurrency by market value, which has seen its price decline sharply. Over the last week, Bitcoin has slumped by more than 10%, nullifying the gains from the prior week's rebound. The slump coincides with a stalling weakness in the US dollar index which had been declining over the past two months. Conversely, this week's influx of US economic data could serve as a pivotal point that might reignite the dollar's weakening momentum and potentially uplift risk assets like BTC.
The economic spotlight intensifies starting Tuesday, with the release of the Institute of Supply Management's (ISM) manufacturing purchasing managers' index (PMI) for August. Expectations, as reported by ForexLive, suggest a slight uptick in the index to 47.5 from July's 46.8. This previous figure narrated the most severe contraction in factory activity since November 2023. A continued weakness in these figures might strengthen the argument for the Federal Reserve to decrease interest rates further, a move that could subsequently devalue the dollar and heighten the allure of riskier investments, including cryptocurrencies. With the CME's FedWatch tool already forecasting a high probability of rate cuts in September, these expectations underscore the market's anticipation.
Noelle Acheson, the author of the esteemed 'Crypto Is Macro Now' newsletter, highlighted last week that monetary policy adjustments such as rate cuts generally favor BTC. This stems from its sensitivity to monetary liquidity conditions, perceived as a risk asset largely unaffected by operational downturns that typically impact other asset classes with fixed cash flows or profit margins. Furthermore, Acheson noted that a weakening dollar, which lowers capital costs and broadens monetary liquidity, could bolster BTC. Moreover, such a scenario enriches BTC's role as a hedge against the dollar, with potential amplified spending power in other jurisdictions.
However, it's crucial to consider that not all data points bolster positive premises. The weaker-than-expected ISM PMI figures released on August 1 stirred apprehensions of a recession, adversely affecting risk assets even as the dollar declined. On that day, BTC plunged by 3.7% to $62,300, highlighting how crucial these economic indicators are. Traders remain wary of potential negative growth shocks that might emerge from disappointing data.
As the week progresses, expect shifts in focus towards further crucial data releases such as the JOLTS job openings, ISM services PMI, and particularly, the nonfarm payrolls (NFP) report due on Friday. Consensus around the NFP report suggests an addition of 165,000 jobs and a reduction in unemployment rate back to 4.2%. Should these predictions hold, it might consolidate market expectations towards only a mild Fed rate cut. Yet, varying predictions from ING's US economists suggest a potential softer addition of just 125,000 jobs and an uptick in the unemployment rate to 4.4%, hinting at a continuation of the dollar's decline.
On a technical standpoint, BTC portrays a defensive posture in anticipation of these key data releases. Analyst Valentin Fournier from BRN research firm observed a strengthening downside momentum in Bitcoin's price indicators, with MACD histograms displaying increasingly negative momentum. With the RSI hovering at neutral levels and the lower Bollinger Band resting near $56,000, BTC might face further declines towards this threshold.
In essence, the interplay between upcoming economic data and market reactions will be instrumental in dictating both the dollar's and Bitcoin's trajectories. As the week unfolds, the financial spheres remain on alert, anticipating the potential cascading effects of these releases on market dynamics and investment strategies. The narrative comes full circle, underscoring the intertwined fate of Bitcoin and the dollar index, where the forthcoming economic data stands as the crucial determinant of their short-term fortunes.
The economic spotlight intensifies starting Tuesday, with the release of the Institute of Supply Management's (ISM) manufacturing purchasing managers' index (PMI) for August. Expectations, as reported by ForexLive, suggest a slight uptick in the index to 47.5 from July's 46.8. This previous figure narrated the most severe contraction in factory activity since November 2023. A continued weakness in these figures might strengthen the argument for the Federal Reserve to decrease interest rates further, a move that could subsequently devalue the dollar and heighten the allure of riskier investments, including cryptocurrencies. With the CME's FedWatch tool already forecasting a high probability of rate cuts in September, these expectations underscore the market's anticipation.
Noelle Acheson, the author of the esteemed 'Crypto Is Macro Now' newsletter, highlighted last week that monetary policy adjustments such as rate cuts generally favor BTC. This stems from its sensitivity to monetary liquidity conditions, perceived as a risk asset largely unaffected by operational downturns that typically impact other asset classes with fixed cash flows or profit margins. Furthermore, Acheson noted that a weakening dollar, which lowers capital costs and broadens monetary liquidity, could bolster BTC. Moreover, such a scenario enriches BTC's role as a hedge against the dollar, with potential amplified spending power in other jurisdictions.
However, it's crucial to consider that not all data points bolster positive premises. The weaker-than-expected ISM PMI figures released on August 1 stirred apprehensions of a recession, adversely affecting risk assets even as the dollar declined. On that day, BTC plunged by 3.7% to $62,300, highlighting how crucial these economic indicators are. Traders remain wary of potential negative growth shocks that might emerge from disappointing data.
As the week progresses, expect shifts in focus towards further crucial data releases such as the JOLTS job openings, ISM services PMI, and particularly, the nonfarm payrolls (NFP) report due on Friday. Consensus around the NFP report suggests an addition of 165,000 jobs and a reduction in unemployment rate back to 4.2%. Should these predictions hold, it might consolidate market expectations towards only a mild Fed rate cut. Yet, varying predictions from ING's US economists suggest a potential softer addition of just 125,000 jobs and an uptick in the unemployment rate to 4.4%, hinting at a continuation of the dollar's decline.
On a technical standpoint, BTC portrays a defensive posture in anticipation of these key data releases. Analyst Valentin Fournier from BRN research firm observed a strengthening downside momentum in Bitcoin's price indicators, with MACD histograms displaying increasingly negative momentum. With the RSI hovering at neutral levels and the lower Bollinger Band resting near $56,000, BTC might face further declines towards this threshold.
In essence, the interplay between upcoming economic data and market reactions will be instrumental in dictating both the dollar's and Bitcoin's trajectories. As the week unfolds, the financial spheres remain on alert, anticipating the potential cascading effects of these releases on market dynamics and investment strategies. The narrative comes full circle, underscoring the intertwined fate of Bitcoin and the dollar index, where the forthcoming economic data stands as the crucial determinant of their short-term fortunes.
Last edited at：2024/12/16
#BTC#U.S. Dollar Index