Bitcoin's Fed Rate Cut Disconnect: What's the Next Move?
Bitcoin's Reaction to Fed Rate Cut Expectations
Recent U.S. jobs data has fueled expectations of Federal Reserve rate cuts, but Bitcoin (BTC) isn't responding as anticipated. Despite increased bets on looser monetary policy, the cryptocurrency remains under $112,000, signaling potential downside risks.
Weak Jobs Report Triggers Rate Cut Speculation
The August nonfarm payrolls revealed a significant slowdown in job creation, with only 22,000 jobs added, far below the projected 75,000. Revisions to previous months also showed a net loss of 13,000 jobs in June. Several sectors experienced job losses, heightening concerns about a weakening labor market.
The Kobeissi Letter described the jobs report as "absolutely insane," pointing to downward revisions as indicative of a struggling system and potential recessionary conditions.
Market Response and Treasury Yields
Following the jobs data, the probability of a Fed rate cut in September rose to 100%, with a 12% chance of a 50-basis-point cut. Anticipation of further cuts in November and December drove Treasury yields lower.
Upcoming revisions to earlier jobs reports are expected to further strengthen rate cut expectations. Marc Chandler of Bannockburn Global Forex noted that revisions could show between 500,000 and 1 million fewer jobs than initially reported.
Bitcoin's Technical Outlook
Bitcoin briefly rallied above $113,300 on rate cut hopes but quickly retreated below $111,982, a crucial level representing the double-top neckline.
This failure to sustain gains validates the bearish double-top breakdown from late August, increasing the risk of further declines. Brent Donnelly of Spectra Markets highlighted that prices falling below the Ichimoku cloud further confirms the negative outlook.
The initial support level sits around $101,700, coinciding with the 200-day simple moving average (SMA). The recent double-top breakdown mirrors a similar pattern from February, which triggered a substantial sell-off down to approximately $75,000.
Double Top Pattern Explained
The double top is a bearish reversal pattern signaling the end of an uptrend. It forms when the price reaches a high (first peak), retreats to a support level (neckline), and then rises again but fails to surpass the initial peak. Confirmation occurs when the price breaks below the neckline, suggesting a shift towards a downtrend.
Potential Treasury Yield Volatility
The bearish technical outlook is compounded by the potential for increased volatility in Treasury yields, which can lead to financial tightening. While initial rate cuts could briefly push the 10-year yield lower (positive for BTC), this move might be short-lived.
In late 2024, despite Fed rate cuts, the 10-year yield rose from 3.6% in mid-September to 4.80% by mid-January.
ING analysts suggest that despite weaker economic conditions, ongoing fiscal concerns and a different inflation dynamic could cause yields to surge post-September rate cut.
Upcoming CPI Data
The August CPI data, due next week, is expected to show persistent inflation. Wells Fargo projects a 0.3% rise in core CPI, keeping the year-over-year rate at 3.1%. Headline CPI is also forecast to increase by 0.3% month-over-month and 2.9% year-over-year.
Traders should monitor these developments closely, as they could influence Bitcoin's price action in the coming weeks.