Federal Reserve Chairman Jerome Powell said in a Q&A hosted by the Cato Institute on September 8 that the central bank will continue to raise rates until inflation is brought under control. However, these comments did not dampen markets as much as most had expected, indicating that traders may have already priced in a 75 basis point rate hike. at the next FED meeting, 20 and 21 September.
Bitcoin has been highly correlated with the S&P 500 and inversely correlated with the US Dollar Index (DXY) over the past few weeks. As the DXY cooled after hitting a two-decade high, riskier assets tried to rally.
US stock markets are looking to break a three-week losing streak as bitcoin (BTC) rose above a psychological level of $21,000.
Does the rally in stock markets and cryptocurrencies indicate that risk sentiment is back? Let’s analyze five asset classes to examine their trends and determine where they may go in the coming days.
Bitcoin bounced off the strong $18,626 support on September 7 and broke above the breakout level of $19,520 on September 9. The aggressive bears may have prompted short covering, which pushed the price above the 20-day exponential moving average (EMA) ($20,434).
The Relative Strength Index (RSI) has moved into positive territory and the 20-day EMA has leveled off, indicating that the bears may be losing their grip.
The 50-day simple moving average (MMS) ($21,981) may act as a minor obstacle, but if the bulls break through, the BTC/USDT pair could rally against broad resistance at $25,211. An open and close above this level could complete a double bottom pattern. Such a move could signal the beginning of an upward momentum. The target for this reversal setup is $31,796.
Contrary to this assumption, if the price falls from the 50-day SMA or $25,211, the pair could enter a consolidation for a few days.
The 4-hour chart shows that the pair gained momentum after breaking through the $19,520 mark. The moving averages have crossed bullishly, indicating an advantage for the buyers, but the RSI in the overbought zone suggests a minor consolidation or correction in the short term.
If the price breaks from the current level or broad resistance at $21,900, but does not break below $20,576, this will indicate that sentiment has changed from rally selling to rally buying. This could increase the likelihood of a break above $21,900.
The first sign of weakness is breaking out and approaching moving media. If this happens, it will indicate that the current uptrend may be a dove rally.
The US Dollar Index (DXY) is headed for a strong rally. After reaching a multi-year peak at 110.78, the index saw some profit pulling the price towards the 20-day EMA ($108.64).
While the rising moving averages indicate an advantage for the buyers, the RSI has diverged negatively, indicating that the bullish momentum may be weakening. If the price is less than the 20-day EMA, the next stop could be on the uptrend line.
This is an important level to watch, as a breakout and close below could indicate a potential trend change. The index could then fall to $104.63. A break below this level could suggest that the index may have peaked.
Conversely, if the price rebounds strongly from the moving averages, this will indicate that sentiment is still evolving and that traders view the decline as a buying opportunity. If the bulls push the price above $110.78, the rally could extend to $113.95.
The 20-EMA is inverted lower on the 4-hour chart and the RSI is in negative territory, indicating that the bears have the upper hand in the short term. The index could fall to immediate support at $108.
If the price recovers from $108 but fails to break above the 20-EMA, it will indicate that the sentiment has changed from buying on the downside to selling on the upside. This could increase the likelihood of a break below $108, in which case the index could begin a deeper correction.
Contrary to this assumption, if the price resists higher from the current level and crosses the 20-EMA, the index could reach $110.24 and then $110.78. Buyers will need to break through this barrier to signal that the trend is up again.
The S&P 500 is in a lower formation and is trying to create a higher floor near 3,900. The price has bounced off the uptrend line indicating that the lower levels are attracting buyers.
The 20-day EMA ($4,050) is an important level to watch in the short term. If the bulls push the price above this resistance, it will suggest that the final leg of the correction may be over.
The index could then try to rally towards $4,200. This level could be a minor obstacle, but if the bulls break through, the rally could hit the critical upper resistance at $4,325.
This positive outlook may be invalidated in the short term if the price moves away from the 20 day EMA. In this case, the bears will try to drive the price below the uptrend line. If they succeed, the decline could reach the major support at $3,700.
The 4-hour chart shows that the recent correction has pushed the RSI into oversold territory. This triggered a bounce, which reached the downtrend line. Buyers will need to push the price above this resistance to signal a potential trend change. The index could then rise to the 50-SMA and later up to $4,200.
Conversely, if the price breaks away from the downtrend line and falls below the 20-EMA, it will suggest that the bears continue to sell rallies. The bears will then try to drive the price below $3,886 and resume the downward move.
Also read: Bitcoin price crosses $21,000 mark, trader says BTC buying now ‘very strong’
Gold Futures (GC) is bearish but trying to make a lower high at $1,700. The price has reached the moving averages, which act as strong resistance, as shown by the long peak of the September 9 candlestick.
If the price declines from the current level, it will indicate that the outlook is still negative and traders are selling on the rallies. The bears will then make another attempt to push the price below $1,700 and challenge the crucial support at $1,675.
Conversely, if the price rises and crosses above the moving averages, it will indicate that the bears are losing their grip. This could push the price towards the downtrend line. A breakout and close above this resistance could indicate that the downturn may be over. This could trigger a rally towards $1,825.
The 4 hour chart shows the bears strongly defending against an upside at $1,737.40. If the price falls below the moving averages, the decline could extend to $1,700. This will suggest action between $1,700 and $1,737.40 for the time being.
Alternatively, if the price is retracing higher from the moving averages, it will indicate that the bulls are buying on the smaller declines. The bulls will then try to drive the price above $1,741. If they achieve this, a rally towards $1,774.80 is possible.
Crude Oil (CL) futures have been trending lower for the past few weeks. The buyers tried to initiate a sustained rally in August, but the bears managed to defend the 50-day SMA ($94) on August 30.
The bulls tried to stop the decline near $85.73, but the level was broken on September 7 and Crude resumed its decline. A small silver lining is that the bulls have not allowed the bearish momentum to resume. This indicates buying at lower levels. The bulls are trying to push the price back above the breakout level of $85.73.
This is an important level to watch because if the price is above $85.73, it could catch some aggressive bears aside. This could lead to a tightening of the short positions and the price could reach the 50-day SMA.
Conversely, if the price falls from $85.73, it will indicate that the level has turned into resistance for the bears. The sellers will then try to resume the downtrend by driving the price back below $81.20. If successful, the reduction could extend to $70.
The 4 hour chart of Crude oil shows a positive RSI divergence. This suggests that the negative momentum may be weakening. The buyers pushed the price above the 20-EMA and the breakout level of $85.73, which is the first indication that the selling pressure may be easing. The rally could then extend to $88.
On the other hand, if the price fails to break above $85.73, the bears will try to drive the price back below the 20-EMA. If they succeed, the price could go down to $82.71 and then to $81.20.
The rally may not break the trend
Bitcoin’s rally is largely fueled by the pullback rally of DXY and SPX, as seen in the analysis above. Both of these assets are highly dependent on the Fed’s action at the next meeting and this could dictate the direction of bitcoin in the short term. Bitcoin proponents should continue to watch DXY and SPX closely for confirmation that there is a bottom for bitcoin.
The views and opinions expressed herein are solely those of the author and do not necessarily reflect those of Cointelegraph. All investment and trading involves risk. You should do your own research before making a decision.