January 27, 2023

Bitcoin (BTC) fell on the Wall Street open on Dec. 9 as United States economic data appeared to disappoint markets.

BTC/USD 1 hour candlestick chart (Bitstamp). Source: TradingView

Attention goes to Bitcoin vs. CPI “big trigger”

Data from Cointelegraph Markets Pro and TradingView showed that the BTC/USD dip moved closer to $17,000 after crossing the overnight level.

The pair reacted poorly to US Producer Price Index (PPI) numbers, which, while above expectations, still beat the previous month’s numbers.

“Slightly overreaction to PPI, which is down significantly compared to last month, but less than expected,” says Michaël van de Poppe, founder and CEO of trading firm Eight, responded.

Van de Poppe, like others, noted that the core of macro clues would come next week in the form of the consumer price index (CPI) for November.

“CPI next week is the big trigger, just like earlier this month,” he added.

CPI could be an important point, trading firm QCP Capital continued, as if it continued its downtrend, markets could gain even stronger conviction about lower inflation greeting the new year.

The meeting of the Federal Reserve’s Federal Open Market Committee (FOMC) days later, where policymakers decide on rate hikes, should add fuel to the fire.

“Tuesday’s CPI will once again be ‘the most significant CPI release ever’, this time as the market is ready with its epic two-month short-squeezer rally,” QCP wrote in a market update on that day.

“At the FOMC, Fed members will release their updated projections of inflation and interest rates. Markets will focus on where they forecast inflation next year, as well as where they see interest rates in 2023 and 2024. Both events are the last remaining hurdles for the year-end rally.”

Analysts acknowledged that if the CPI were to disappoint, it might “invalidate” the stock rally so far. According to the CME Group’s FedWatch Tool, a rate hike of 50 basis points had a probability of 77%.

Graph of probability percentages from the Fed. Source: CME group

US dollar catches a break

US equities were flat after the first hour of trading, with PPI failing to make a significant dent in performance.

Related: GBTC ‘elevator to hell’ sees Bitcoin spot price approach 100% premium

For macroeconomist and equity analyst James Choi, this was to be expected, as the Fed was already considering slowing the pace of its rate hikes.

“The FED has already shifted its course. Today’s PPI won’t make a dent in Powell’s plan. Next week it’s 50 bps, and then it’s done,” he said. predictionand also said his calculations predicted a “much, much lower” CPI reading than many believed.

Meanwhile, the strength of the US dollar also simmered, with the US dollar index (DXY) trying to make up for lost ground from the previous day thanks to the PPI.

US dollar index (DXY) 1 hour candlestick chart. Source: TradingView

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