Bitcoin price sold-off from $470 (Bitstamp) and 3030 CNY earlier today. A Fed rates announcement is widely expected to catalyze global market trends later on Wednesday, yet the bitcoin market just took profit, for good measure, before the Fed even spoke.
Time of analysis: 09h00 UTC
A Federal Open Market Committee (FOMC) statement at 19h00 UTC today will make a rates announcement, and the market generally expects the Fed to refrain from hiking today and to do so in July instead.
Today’s analysis outlook had remained unchanged since yesterday. Price action was animated below resistance and a continuing rally seemed more and more likely. The last time (October 2015) that the current combination of conditions coincided, bitcoin price had embarked on the strongest rally for 2015 when the Fed asserted its intention to hike rates in December.
The implication of a Fed Funds rate hike is that it will cause money flow into the US economy and, therefore, strengthen the US dollar. By not hiking today the Fed will reveal caution and a wait-and-see approach to the “global economic recovery”, as they call it. When the Fed did raise rates, in December, their action sent markets into a tailspin and bitcoin price into a deep correction.
Actually raising rates, it appears, is good for the US dollar, but bad for markets, including bitcoin. Delaying a rates hike, increases uncertainty and stokes the kind of market fear that sends commodities bitcoin and gold rallying.
The implication for bitcoin price was that an announcement, today, of keeping US interest rates unchanged would allow bitcoin price to continue its rally.
However, several hours before the Fed’s scheduled announcement, a sell-off gripped the market and destroyed the past week’s price advance in a single red candle.
From the analysis pages of xbt.social, earlier today:
Looking at the 1hr BTCC chart (right), we see that RSI (top) had diverged on the last high, and that this divergence was followed by a reverse divergence made to the downside. The combination implies another nominal price high, although it does not show in all exchange charts.
Regardless, remember that price is at critical resistance – an annual high – at the same time as a major global economic announcement is due (Fed rates), so the market is unlikely to make progress until after the announcement (19h00 UTC) when the largest bitcoin players (investment funds) position in the market. That the bullish spirit to date has been mostly retail activity, i.e. ordinary exchange traders, is evident from the advance’s low volume that has also been contracting (blue arrow) as price advanced during the past week.
The 1-week chart (left) contains several warnings. This week’s candle has not yet closed, but the current conditions are:
1) Price is above the December closing high, but RSI is diverging from the move. Unless there is an extraordinary, powerful surge to the upside, it seems unlikely that RSI can negate this divergence. The implication is a downward price correction, at least.
2) Low (and contracting) volume reveals lack of wide participation. It is as if the largest investors are sitting out. Wonder why would they would do that, right?
3) Despite a generally rising average price since February, the stochastics (circled in magenta) are accelerating to toward their minimum.
A sell-off pulled bitcoin price out of the zone from where it could continue into parabolic advance based on a dovish Fed rates statement. However, the market may return to advance after completion of the unexpectedly deep correction. Traders should wait for the Fed announcement and the market’s reaction to this significant news.
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Bitcoin price charts from TradingView.
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Last modified (UTC): April 28, 2016 03:06