Bitcoin (BTC) remains on a downtrend as the U.S. dollar gains strength. There is growing speculation and concern that the dollar’s ascent will persistently exert downward pressure on BTC prices and weaken the overall cryptocurrency market. Will BTC’s price continue its decline? Find out in the analysis below.
The Pintu trading team has gathered critical information and analyzed the general economic situation and the crypto market’s movements over the past week. However, it should be noted that all information in this Market Analysis is intended for educational purposes, not as financial advice.
This week’s analysis begins with a decline in the S&P Global US Purchasing Managers’ Index (PMI) for August 20-23, which fell significantly to 50.5 from July’s 52.3. The composite index also fell to its lowest level since February, dropping from 50.4 to 50.2.
The survey results point to growing concerns about stagflation, as persistent price pressures coincide with a significant slowdown in economic activity.
<aside> 💡 Stagflation is a condition in which the economy does not grow while prices continue to rise.
Despite a decline in overall business activity, the services sector actually extended its growth streak in August, with the details as follows:
The services sector recorded an accelerated growth rate, with increases in all four sub-indexes contributing directly to the composite services PMI. While sentiment among business survey committee respondents varied across industries, the majority were positive about business and economic conditions, with a slight moderation in the pace of growth observed in the services sector.
Although the service sector appears positive, caution is warranted as the likelihood of a rate hike in November has increased. This increased likelihood is further exacerbated by comments from Fed’s Collins, who emphasized that the Fed has not been effective in taming inflation.
On the interest rate front, the Federal Reserve is likely to keep its benchmark interest rate in the range of 5.25% to 5.50%, which it raised by one percentage point last quarter. In the financial markets, there’s a 50-50 chance that the Federal Reserve’s rate-hiking campaign, which began 18 months ago, has come to an end.
Nevertheless, Fed officials continue to maintain a flexible approach. They believe that the cumulative 5.25 percentage point rate hikes implemented since March 2022 have had a dampening effect on the economy, limited job growth and, most importantly, may have suppressed inflation, which rose to its highest level in 40 years last year.
Data in the six weeks following the Fed’s most recent rate hike tend to support this view. During this period, the economy added an average of 150,000 jobs per month over the last three months, a significant slowdown from the previous three months. In addition, inflation, as measured by the Fed’s preferred indicator, was 3.3% in July, down sharply from 7% last summer.
A policymaker such as Fed Governor Christopher Waller asserts that the central bank will have the opportunity to assess new data before making decisions on the need for further rate hikes or the viability of maintaining current rates.
Applications for U.S. jobless benefits fell to their lowest level since February, according to the latest data from the Labor Department, underscoring companies’ reluctance to lay off workers.
For the week ending September 2nd, initial jobless claims fell by 13,000 to a total of 216,000. This figure exceeded all economists’ expectations of 234,000.
In addition, continuing claims, which serve as a proxy for the number of people receiving unemployment benefits, fell to 1.68 million for the week ending August 26. This is the lowest level since the previous July, when the figure was 1.72 million and the market consensus was 1.71 million.
The price of BTC has the potential to go as low as $23,500. One of the reasons for this is the strengthening performance of the US Dollar Index (DXY), which has shown an inverse correlation with bitcoin over the past few years. The continued rise in the value of the dollar is raising concerns about its negative impact on BTC and the broader crypto market in the short term.
Some analysts believe that a further rise in the value of the dollar and low trading volumes for BTC could continue to drive BTC prices lower. Currently, BTC is being held at the 200-week EMA support line (purple line at $25,700). Resistance is at the 200-day MA at $27,500.
The DXY (Dollar Index) has experienced a significant surge, reaching its highest level since March, marking a pivotal moment for BTC and the broader crypto sector. The DXY, which measures the performance of the U.S. dollar against six major currencies, has continued its upward momentum, crossing the 104 threshold in the last four days to reach a five-month high of 105.