Bitcoin’s price rally has stalled for five days now. After BTC experienced a massive surge from $21,000 to $23,000 last Friday, the price is now in a consolidation phase. The reasons for this are diverse.
Like NewsBTC reported, Bitcoin’s Relative Strength Index (RSI) shows severe overheating on a daily basis. The technical indicator shows that the BTC price is in severely oversold conditions.
During the recent upward move, the daily RSI was close to 90 at times, but has since cooled to 78 at the time of writing. The BTC price stalling at $23,000 could therefore be a signal for a healthy consolidation and a reset before another price rally could be imminent.
Another important factor driving Bitcoin’s price in recent weeks has been its price correlation with the US Dollar Index (DXY) and the S&P 500. In general, a weakening dollar is bullish for risky assets like Bitcoin and the S&P 500.
However, the weekly chart of the DXY shows that the dollar index is still above the weekly support of 101, which experts consider an extremely crucial support level.
If the DXY falls below this figure, it would be extremely bullish for the Bitcoin price. However, due to the continued support, the euphoria among risk investors may also have come to a halt for the time being.
FOMC meeting will be decisive for Bitcoin price
The next FOMC meeting of the US Federal Reserve takes place in exactly one week, on February 1, and will likely set the course for a new bull or bear trend.
According to the CME FedWatch tool, 98.2% currently believe the Fed will cut the rate hike rate further, increasing only 25 basis points. But statements by Fed Chairman Jerome Powell will also be crucial.
Thomas Lee of Fundstrat Global Advisors assesses that inflation has “literally hit the wall” since October and that 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 caused by an “unforced error” by the Fed and led the FOMC to say inflation was hotter in December.
As a result, Fundstrat expects the FOMC to make a “rate correction” in February, meaning financial conditions will ease and the VIX will fall, which will in turn push up risky assets.
However, Lance Roberts, chief strategist at RIA Advisors, warns that the Fed does not like the current rally in the financial markets and will therefore take appropriate measures.
The Fed will really not like it if the bulls rush the markets and loosen financial conditions like that. Don’t be surprised if Powell hits the market again at the upcoming FOMC meeting.
On the other hand, Fed Governor Chris Waller recently spoke out in favor of a 25 basis point rate hike at the next FOMC meeting, confirming expectations for the February FOMC meeting, as reported by Nick Timiraos of the Wall Street Journal. , also known as the “Fed’s mouthpiece.”
As chief economics correspondent wrote via Twitter, Waller made it clear that the Fed would not make a risk management mistake similar to the one it made in 2021 when it stuck to its forecast of continued disinflation. Waller said, “This is different from 2021 because it’s easier for the Fed to cut if it’s wrong.”
“In other words, Waller sees the risk of over-tightening, as inflation falls rapidly, as a prime problem,” Timiraos said.
For the price of Bitcoin, the indication of an imminent pivot and a 25 basis point increase would be a powerful reason for another rally. At the time of writing, the BTC price was at $22,622.
Featured image from iStock, chart from TradingView.com