Bitcoin dropped after Fed Chair Warsh's hawkish Jackson Hole speech reversed the market's "debasement" trade, though the cryptocurrency has stayed resilient and is consolidating near its recent highs. Traders are now watching whether price breaks above or below the roughly $77,000-$80,000 range that formed after the speech.
Warsh reverses the debasement trade
Bitcoin fell on Friday after Fed Chair Warsh delivered a hawkish speech at the Jackson Hole Symposium. Fed Chair Warsh said, according to InvestingLive: "I would be hard pressed to describe broad financial conditions as restrictive". The market read that as Warsh leaning against the recent easing in financial conditions, and it retightened them as a result.
Cryptocurrencies including Bitcoin had rallied on "debasement" fears following the US Treasury's buyback announcement to suppress long-term yields. Warsh's speech triggered a reversal of that trade, sending gold and the US dollar back to their pre-announcement levels. Bitcoin, however, showed relative resilience and instead extended its consolidation near recent highs.
Key levels traders are watching
On the daily chart, Bitcoin is consolidating just below the major swing high near the $82,500 level, which is likely to act as resistance. If the price rallies into that resistance, sellers may step in with a defined risk above it, positioning for a drop toward $67,000. Buyers, on the other hand, want to see price break higher to increase bullish bets toward $98,000 next.
A break above the Warsh-speech resistance area around $79,887 could point to an extension of the uptrend, while a break below the post-speech low could lead to a bigger selloff. On the four-hour chart, the recent price action may have formed a head-and-shoulders pattern: buyers are likely to lean on the neckline with defined risk below the left shoulder's low to keep targeting new highs, while sellers want a break lower to target a drop back into the $67,000 support level.
CPI holds the key to the Fed's next move
Warsh also reiterated that the Fed is focused solely on inflation now and said progress has been slow. Markets currently price the probability of a hike at the upcoming meeting at 67%, and only a soft US CPI report would likely bring that probability below 50% and deter the Fed from hiking. If the probability stays at or above 50%, the Fed may hike regardless, since holding off would send a dovish signal and ease financial conditions again.
Easing financial conditions and a dovish repricing of interest-rate expectations would support Bitcoin and extend its upward momentum. A hot CPI report or hawkish surprises, on the other hand, would likely weigh on the cryptocurrency and could trigger selloffs.
Source: InvestingLive
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