Bitcoin price rally has stopped for five days now. After BTC experienced a furious surge from $21,000 to $23,000 last Friday, the price is currently in a consolidation phase. The reasons for this are various.
As reported by NewsBTC, Bitcoin’s daily Relative Strength Index (RSI) is showing a lot of heat. Technical indicators show that BTC price is in a very oversold condition.
During the recent up move, the daily RSI was near 90 but has since cooled to 78 at press time. BTC price stalling at $23,000 could therefore signal a healthy consolidation and reset before a new price rally could be on the cards.
Another key factor for the price of Bitcoin in recent weeks has been its correlation with the US Dollar Index (DXY) and the S&P 500. In general, a weaker dollar is bullish for risk assets like Bitcoin and the S&P 500.
However, the DXY weekly chart reveals that the dollar index still remains above the weekly support at 101, which experts consider a very important support level.
If DXY breaks below this mark, things will turn very bullish for Bitcoin price. However, given the remaining support, the euphoria among risk investors may have stopped.
FOMC Meeting Will Determine Bitcoin Price
The US central bank’s next FOMC meeting is just one week away, on February 1st, and may set the stage for another bull or bear trend.
According to the CME FedWatch tool, 98.2% now think that the Fed will further reduce the rate of rate hikes and raise it by only 25 basis points. But the statement of Fed Chairman Jerome Powell will also be important.
Thomas Lee of Fundstrat Global Advisors evaluate inflation that has “literally hit the wall” since October and core inflation is not “sticky,” contrary to the Fed’s initial expectations. According to Lee, the bearish sentiment in the stock market in December was triggered by “unforced errors” by the Fed and led to the FOMC stating that inflation was hotter in December.
As a result, Fundstrat expects the FOMC to make a “course correction” in February, meaning financial conditions will loosen and the VIX will fall, which will push risk assets higher.
However, Lance Roberts, chief strategist at RIA Advisors, remind that the Fed is not happy with the current rally in the financial markets and will therefore take appropriate action.
The Fed really doesn’t like the bulls that open up the market and weaken the financial situation. Don’t be surprised if Powell smacks the market again at the next FOMC meeting.
On the other hand, Fed Governor Chris Waller recently came out for a 25-basis rate hike at the next FOMC meeting, thus strengthening expectations for the February FOMC meeting, as reported by Nick Timiraos of the Wall Street Journal alias “Fed’s mouthpiece.”
As the main economic correspondent write via Twitter, Waller explained that the Fed will not make the same risk management mistakes it did in 2021 when it stuck to its forecast for persistent disinflation. Waller said, “this is different than 2021 because it’s easier for the Fed to cut if it gets it wrong.”
“In other words, Waller sees the risk of being overextended as inflation falls rapidly as a first-class problem,” Timiraos said.
For the price of Bitcoin, the indication of the upcoming pivot and the increase of 25 basis points will be a strong reason for a new rally. At press time, the price of BTC is at $22,622.
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