Bitcoin Market Gearing Up for CPI: Will BTC Rally or Retrace Today?

As the highly anticipated US Consumer Price Index (CPI) data for June is set to be released today at 8:30am EST, the Bitcoin (BTC) market finds itself at a crucial crossroads. With inflation concerns persisting and the Federal Reserve’s next steps scrutinized, market participants are anxiously awaiting the impact of the CPI data on BTC’s price trajectory. The expectations are as follows:

• title year/year 3.1% (final 4.0%)
• Headline M/M 0.3% (Final 0.1%)
• Core CPI YoY 5.0% (Final 5.3%)
• Core CPI M/M 0.3% (Final 0.4%)

Fed’s fight against inflation

In recent months, inflationary pressures have been a cause for concern, drawing the attention of investors and economists. While headline inflation is easing sharply and is expected to fall to 3.1% (from 4.0% in May), it is the core CPI, which excludes volatile food and energy prices, has become increasingly important.

In recent public appearances, members of the Federal Reserve (Fed) have maintained an accommodative stance and expressed concern about a possible resurgence of inflation in relation to elevated core inflation. The underlying concern stems from the fact that inflation has declined mainly due to resolution of supply chain problems, while core inflation remains high.

The increase in wages can contribute to a cycle of raising sticky core inflation. Although the core CPI stood at 5.3% in May, experts now expect a gradual decline to 5.0% in June. Although this is progress, it shows how stable core inflation remains at present. So an unexpectedly sharp decline would be extremely bullish.

As noted trader and psychology coach Christopher Inks tweeted:

The CPI for the headline numbers will be released this time with a bigger expected drop to 3.1% from 4% last time. If core CPI falls below 5%, that would be huge, and you better hold on to your britches. Will used car sales fall more than expected?

The surprise increase in core inflation could have a significant impact on the Fed’s next rate hike decision. The next FOMC meeting is on July 26. At the moment, the CME Fedwatch tool predicts a 25 bps rate hike with 92.4% ralliing the market. If the core CPI turns down surprisingly, that outlook is likely to diminish massively.

As always, JPMorgan has a game plan for the S&P 500 ahead of today’s consumer price index release. According to the banking giant, the chances of a 3%-3.2% decline in CPI are at most 45%. The S&P 500 could then rise between 0.5-0.75%.

The second highest probability is given by JPMorgan for a decline in headline CPI from 2.8% to 2.9% (25%). In such a situation, there can be an increase of 1.5-1.75% in S&P 500. Furthermore, the banking giant gives a 10% chance for the CPI to fall to 2.7% or below, while the chance of surpassing the forecasted reading (above 3.3%) is only 20%.

Possible scenarios for bitcoin

If the CPI figures come in higher than expected, indicating elevated inflationary pressures, BTC may face a temporary pullback. In case the CPI falls within the projected range, the reaction of BTC could be moderate. Investors will be closely monitoring the data for signs of continued inflation, which could potentially result in a slight drop in the price of bitcoin.

The lower-than-expected CPI figure, suggesting easing inflationary pressures, could ignite a bullish rally in BTC. Investors can see this as a positive sign indicating a constant rate hold by the Fed. A lower-than-expected core CPI reading has the potential to provide a much-needed boost to bitcoin.

As of press time, bitcoin price has managed to break the mid-range resistance, trading at $30,767.

Featured Image from iStock, Chart from Tradingview.com