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Bitcoin (BTC) is leading cryptocurrencies north, as the broader financial market anticipates the US Consumer Price Index (CPI) report for the month of July, out on August 10 at 12:30 GMT.
Research shows the relationship between cryptos and US inflation is ultimately tenuous. Whilst there have been periods where cryptos appear to have been used as an inflation hedge, these are not consistent enough and too often contradicted to offer a robust correlation.
That said, if Thursday’s CPI reading causes market volatility it will probably spill over into crypto as there is evidence of a correlation with broader market volatility (as measured by the VIX). A big miss, therefore, could impact the big crypto.
Ethereum (ETH) and Ripple (XRP), meanwhile, are both riding on this optimism, but it remains to be seen whether this is sustainable.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it.
Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
Also Read: Could Bitcoin price advance amid higher US inflation rate expectations?
Bitcoin price has investors on the edge of their seats
Bitcoin (BTC) price shows optimism, which explains the recent run up and tagging of the $30,259 resistance level. However, the breach of this barricade was premature, as it was followed by a rejection. Now BTC could draw lower towards the demand zone at $29,353 to $28,842.
If this buyer dormancy zone fails to hold Bitcoin price could slip through, flipping the zone into a bearish breaker before BTC extends toward the 200-day Exponential Moving Average (EMA) at $28,602.
In a dire case, the flagship crypto could move lower to the $27,300 range – or retest the June 18 lows around $26,320 in the worst possible outcome. Such a move would constitute a 10% downswing from current levels.
The Relative Strength Index (RSI) supports the bearish outlook as it edges south reflecting falling momentum. Similarly, the histograms of the Awesome Oscillator are thinly above the midline, suggesting bears could easily take control.
BTC/USDT 12-hour chart
Conversely, a resurgence by the bulls could salvage the situation for Bitcoin price, correcting the slump with a northbound move toward the $30,259 roadblock.
A successful breach of this supplier congestion zone into support would invalidate the bearish outlook, potentially clearing the path for a rally to $31,462. This would denote a 5% uptick above current levels.
Also Read: Bitcoin whales make a comeback as open interest hits 15-month high ahead of CPI announcement.
Ethereum price could pull toward the demand zone
Ethereum (ETH) price is trading with a bearish inclination. The second largest crypto by market capitalization is facing rejection from both the 50- and the 100-day EMA at $1,859 and $1,862 respectively.
As buying pressure continues to fade, sellers could push Ethereum price below the 200-day EMA at $1,842. Therefore, the area between $1,836 and $1,806 is crucial for ETH, giving bulls a chance to buy aggressively lest the PoS token converts it into a bearish breaker as it extrapolates to the $1,786 support level.
The dipping RSI also supports this outlook by showing falling momentum, and the AO histograms point to bears dominating the bulls.
ETH/USDT 12-hour chart
If the above scenario does not play out, Ethereum price could pull north, restoring above the 50- and 100-day EMA before confronting the $1,887 resistance level. A bold move above this barricade could inspire hope among bulls drawing in sidelined investors and conservative traders.
The ensuing buying pressure could see Ethereum price reclaim the July 19 peak around $1,921 or extend a neck to tag the $2,005 resistance level in a highly bullish case. This would denote a 10% ascension.
Also Read: Ethereum could become internet’s money layer as PayPal issues PYUSD stablecoin as an ERC-20 token
Ripple price could breach the $0.684 resistance level
Ripple (XRP) price has been in a two-day uptrend since August 7, flipping the 100-day EMA into support at $0.6238 before testing the 50-day EMA at $0.6591. If buyer momentum increases, XRP could break above the $0.6840 resistance level before a potential northbound move to the $0.8260 resistance level.
The RSI suggests rising momentum as it moves north, while the histograms are green to show bullish momentum. However, the price strength indicated by both momentum indicators below their midlines is concerning.
XRP/USDT 12-hour chart
With weak price strength, XRP bears could quickly regain control of the market, sending Ripple price below the 100-day EMA at $0.6238.
In a dire case, the remittance token could go as low as the 200-day EMA at $0.5697, totaling a 10% slump from current price levels.
Also Read: Ripple XRP price rally to $21 target likely, experts support Judge Torres’ ruling.
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