Bitcoin Traders Prepare For ‘Huge Week’ As Fed Interest-Rate Decision Nears

As the Federal Reserve responds to US inflation, Bitcoin (BTC), heads towards the end of the month of July, juggling the volatility catalysts.

Important points

• Markets expect a hike in September as the US bond yields surge. 
• The PCE for June is expected on Thursday, after reaching a record high of 4,1% in May.
• Bitcoin’s macro-correlation is the subject of attention as signs indicate a change in the uptrend for equities.
• Since June, whale exchanges are down by 44%.

The markets are divided on the rate outlook

On Wednesday, July 29, the Federal Open Market Committee under the chairmanship of Kevin Warsh is set to release its most recent interest rate decision.

The combination of persistent inflation and geopolitical tensions has reshaped expectations Last week’s rise in US 2-year Treasury yields to 4.3% raised concerns about Fed policy. CME Group data shows the latest trends. FedWatch Tool There is a current 31% probability of an increase this week. If it happens at the September meeting, there are 50% odds.

Fed Target Rate Probabilities (screenshot). Source: CME Group

The expectations of a rate increase were slightly tempered as oil dropped by 8% at the start of the day on Monday, as US and Iran stopped their strike. The odds of a rate hike shifted down from 37.4%, to 33.7%. Continuing developments in Middle East have continued to inject volatility into macroeconomic forecasts, even though PPI inflation data released earlier in the month It was below expectations.

Fed target rates probability comparison for the July FOMC meeting. Source: CME Group

Mosaic Asset Company noted in a comment that 30-year bond prices are about to break upwards. The long-end of the curve plays less of a role now in financing the US government. This could theoretically add pressure to Warsh when he formulates his words at the post FOMC press conference.

“The 30-year Treasury yield is also testing a key breakout level once again. In May, the 30-year yield saw a false break above the 5% level which has served as resistance since late 2023,” The latest issue of the regular newsletter summarizes it. The Market Mosaic.

US 30-year bond yield data. Source: Mosaic Asset Company

Warh, the new Fed chairman, had been in place even before this latest crisis. steered clear of dovish language His post-FOMC press conference and statement was remarkably brief.

“Inflation remains elevated relative to the Committee’s 2 percent goal, in part reflecting supply shocks that have driven price increases in certain sectors, including energy,” He told me at the moment.

PCE inflation falls from three-year peak

On Thursday, the markets will also be looking at the Personal Consumption Expenditures index (PCE) for new signals about inflation trends. The current June reading of the index is three-year highs.

PCE volatility can have a snap impact on risk-asset performance as traders reprice potential Fed reactions. June’s release coincided with Bitcoin dropping to macro lows around $58,000.

The International Monetary Economics Network’s (IMEN) latest analysis predicted that PCE will be slightly lower than May’s 4,1% on a year-over-year basis. “U.S. inflation: We currently expect June PCE inflation to be 3.7% year‑over‑year,” It is a good idea to get a hold of someone. wrote On X. 

US PCE inflation data (screenshot). Source: Bureau of Economic Analysis

Bitcoins and stocks do not correlate

Correlations between Bitcoins and equity indexes are largely absent on higher timeframes. Data from TradingView currently puts the daily correlation between BTC/USD and the S&P 500 with a 20-week loopback window as practically absent, at its lowest levels since March. In mid-February, the Nasdaq Index’s current correlation coefficient was 0.11. Correlations are slow to move on a weekly basis, but macro and geopolitical events that move the market in a bearish direction could make it move again.

BTC/USD weekly chart, with 20-week rolling stock correlation. Source: Cointelegraph/TradingView

As of now, US corporate earnings have exceeded expectations. This is not likely to protect the market against a potential downturn, however, due to the historical high valuations. Last week, several major US technology stocks experienced significant declines. After $GOOGL, $TSLA and other major US tech stocks had suffered earlier this week, the Magnificent Seven fell by a combined 5.3% on Friday.

Despite this, “Alphabet, $GOOGL , is the single largest margin contributor after significantly beating earnings estimates,” Kobeissi Letter commented The topic will be discussed at the end of the week. 

“Meanwhile, 86% of reporting S&P 500 firms have so far beaten EPS estimates, while 80% have exceeded revenue expectations. AI is driving historic earnings growth.”

S&P 500 net profit-margin data. Source: Kobeissi’s Letter at X.com

Mosaic Asset Company has highlighted the risk that the current rate environment could exert on US equity markets.  

“Rising rates across the yield curve could keep pressuring stock prices, where indexes like the S&P 500 and Nasdaq peaked in early June and are now losing key support levels. At the same time, market breadth is deteriorating while the backdrop for seasonality is transitioning from a bullish tailwind to bearish headwind. Seasonality during mid-term election years also tends to produce lower average returns and larger drawdowns.”

With these emerging hurdles, the S&P 500 is at risk of losing its bullish setup altogether, Mosaic warns.

“The S&P already lost one key support level with the 50-day moving average (MA – black line). If trendline support in the triangle gives way, that could set up a test of the 200-day MA (green line) that’s currently near the 7,000 level (or 5% downside from current levels),” It is added with an explanation chart.

S&P 500 data. Source: Mosaic Asset Company

The picture is fluid on shorter timeframes, as a temporary pause between US-Iran hostilities has provided a positive impulse for risk assets. US WTI crude dropped to $83 a barrel at the start of this week. previously eyed $95.

“The market is beginning to price-in a peace deal again,” Kobeissi responded.

US WTI Crude Oil One-Hour Chart CFDs. Source: Cointelegraph/TradingView

“Boring” BTC Price Range Tests 50-Month Trend Line

Bitcoin increased its local highs to $65,680 following the Sunday weekly close. BTC/USD remained within a range that was familiar, battling its 50 month exponential moving average line (EMA). previously flipped it to resistance Copycat moves from 2022’s bear market.

Chart of BTC/USD with 50-month EMA. Source: Cointelegraph/TradingView

Rekt Capital, a trader and market analyst who commented on the current setup of the markets, highlighted resurgent selling pressure.

“The more seller-dominant the volume becomes while Bitcoin is at resistance, the greater the chances for a rejection from here,” He warned X-Followers Sunday

Rekt Capital incorporated the moving average of 200 weeks (SMA), describing the price as “sandwiched” It is a 50-month version of the same product.

“Continued price compression here is unsustainable and will eventually force major volatility,” He forecast. 

“And if the seller volume keeps coming in at this rate, then there’ll likely be a breakout on seller volume to precede a rejection from this local resistance area.”

BTC/USD one-week chart. Source: Rekt Capital on X.com

Binance Whale inflows almost halved since mid-June

The impact of the FOMC on cryptocurrency markets is discussed by Onchain Analytical Platform. CryptoQuant There is a possible knock-on for the sell-side on major exchanges.

Related: BTC supply in profit eyes 60%, but analysis hints recovery may ‘roll back over’

Binance’s data shows that BTC flows from whales have fallen by as much as 44%, while those of retail investors fell by 22%.

“This leaves retail inflows at roughly twice the level of whale inflows, with a gap of $3.9 billion,” Amr T. Taha contributed a Monday blog. 

“The divergence suggests that the composition of BTC transfers into Binance has shifted: retail participants are currently significantly more active than whales in sending BTC to the exchange.”

Binance’s Bitcoin Whale Inflows (screenshot) Source: CryptoQuant

Taha called the FOMC meeting a “major macro catalyst” The market could be reshaped by all cohorts of investors.

“With retail inflows now running at 2x whale inflows, Wednesday’s Fed decision could provide an important test of whether the current divergence between the two BTC cohorts persists or begins to converge,” He said.

You can also read about the advantages of using Cointelegraph reportedBinance reported a withdrawal of over 9000 BTC in one day last week.