Bitcoin Recovers as Oil Prices Ease, Focus Shifts to US CPI

What happened

Bitcoin, which had experienced a negative day under pressure from the broader crypto market and surging crude oil prices, has seen a recovery. During the Asian session, oil prices pulled back, leading to a quick reversal in many risk assets, including Bitcoin. The geopolitical situation remains largely unchanged, with ongoing Houthi attacks on Saudi Arabia and a deadlock in US-Iran negotiations. Unless the Federal Reserve (Fed) adopts a more dovish stance, geopolitical risks are likely to continue capping upside potential.

Why it matters

Bitcoin's recovery, driven by easing oil prices, highlights the cryptocurrency's sensitivity to macroeconomic and geopolitical factors. Investor attention is now shifting to the upcoming US Consumer Price Index (CPI) report. This data is crucial because higher-than-expected inflation could lead to a more hawkish repricing of the Fed's monetary policy, increasing the probabilities of interest rate hikes and potentially pressuring risk assets like Bitcoin. Conversely, a softer inflation report could provide a short-term boost to the cryptocurrency by alleviating interest rate concerns.

Market impact

• Interest rates and bonds: A higher-than-expected US CPI tends to push Treasury yields higher, as the market would price in a greater likelihood of Fed monetary tightening. A lower CPI, on the other hand, could ease this pressure, leading to a drop in yields.
• Dollar and FX: A strong US CPI could strengthen the dollar against other currencies, including the Brazilian real, due to expectations of higher interest rates. A weak CPI would tend to weaken the dollar.
• Equities: Elevated CPI could lead to risk aversion, pressuring global stock markets, including the Ibovespa, due to fears of higher interest rates and economic slowdown. A soft CPI could be viewed positively, boosting equity markets.
• Commodities: The decline in oil prices has already shown a positive impact on risk assets. However, the US CPI could influence global demand and, consequently, the prices of other commodities, depending on expectations for economic growth and monetary policy.
• Crypto: Bitcoin tends to be sensitive to CPI. A higher-than-expected core inflation report could trigger a selloff due to hawkish repricing and increased rate hike probabilities for October. A soft report, on the other hand, might give the cryptocurrency a short-term boost.
• Brazil: The impact on Brazil would be indirect, via exchange rates and capital flows. A global scenario of higher US interest rates tends to devalue the real and hinder investment flows to emerging markets, while a more dovish global scenario could be beneficial.

What to watch

The main event to watch is the US CPI report. Additionally, other important economic data include the US Producer Price Index (PPI), US Retail Sales, and the latest US Jobless Claims figures, which will be released later. These data points will provide further clarity on the health of the American economy and future Fed decisions.

Scenarios

Base Scenario: A CPI in line with expectations or slightly softer could allow Bitcoin to maintain its recovery and continue testing resistance levels, with the market pricing in less urgency for Fed rate hikes. Risk Scenario: A higher-than-expected core CPI could lead to a correction in Bitcoin and other risk assets, with the market pricing in a more aggressive Fed stance and higher probabilities of interest rate hikes in October.

Original source: ForexLive (InvestingLive). For information only, not investment advice.