Bitcoin week ahead Ep18: Hawkish Fed policy expectations keep BTC under pressure

Bitcoin week ahead Ep18: Hawkish Fed policy expectations keeps BTC under pressure
Bitcoin week ahead Ep18: Hawkish Fed policy expectations keep BTC under pressure

NEW DELHI (CoinChapter.com) — Bitcoin may remain on the defense in the week ahead as investors’ focus turns to important economic updates from the U.S., including inflation, which has remained a hot topic in the country and crypto-zone, after its headline price growth at its most aggressive in the last three decades.

Now, the Federal Reserve’s preferred metric to measure inflation, dubbed core personal consumption expenditures (PCE), is in focus. The market expects the core PCE to cross the wires at 4.4% year-over-year in October. The reading, if accurate, comes to be 2.4% higher than the Fed’s intended inflation target of 2%.

GALA/USD four-hour price chart featuring H&S setup. Source: TradingView
U.S. Core PCE Data since 1978. Source: TradingView

Nonetheless, the main argument from the U.S. central bank remains that the ongoing inflation rally is “transitory” in nature.

Bitcoin slips

Looking at the correlation between the duration of the Fed’s quantitative easing policy and Bitcoin, one can easily notice that the central bank’s $120 billion a month asset purchase program has acted as a tailwind to the cryptocurrency’s nearly 1,700% price gains since March 2020.

BTC/USD weekly price chart. Source: TradingView
BTC/USD weekly price chart. Source: TradingView

But Bitcoin has entered a correction period after rallying to its record high of $69,000 earlier this month. Its correction coincides with the Fed’s change of tunes regarding its quantitative easing policy. In detail, the central bank has decided to unwind its $120 billion monthly stimuli in November, to remove the monetary support entirely by June 2022.

Meanwhile, it also plans to start increasing its near-zero interest rates after implementing its quantitative tightening plans. Economists have predicted at least two rate hikes by the end of 2022. Coupled with rosy economic rebounds, the “tapering” may end up raising the U.S. dollar, thus reducing shine off seemingly overvalued safe-haven rivals. Bitcoin, it appears, is one of them.

More shocks for Bitcoin expect to come as U.S. President Joe Biden reelects Jerome Powell as the Fed’s chairman. In his previous press conferences, Powell has favored early tapering, which prompted traditional hedge gold to fall and the dollar to rise to its 16-month high on Monday.

Bitcoin fell by more than 4.5% to $56,000 in the same period.

Technical setup: a rebound possible

Bitcoin has been trending higher inside an upward sloping channel, now inching towards its lower trendline for a potential price rebound.

Bitcoin daily price chart featuring ascending channel setup. Source: TradingView
Bitcoin daily price chart featuring ascending channel setup. Source: TradingView

The coming days could have traders watch levels below $54,000 as their short targets while anticipating further declines to below $50,000. Meanwhile, a rebound off the Channel support may create a good long opportunity for bulls, with an interim upside target sitting near $60,000.

Meanwhile, an extended buying sentiment could also have Bitcoin stretch its rebound to the previous high of $69,000, followed by another all-time high level.

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