Market expectations and market rallies often move hand in hand.
Keeping this in mind, the latest U.S. CPI data should have ideally triggered a stronger rally, especially with crypto consolidating in a tight range for over 6-7 weeks now.
Yet, the reaction was pretty muted, with Bitcoin [BTC] up just 0.5% and still capped below the $65k resistance. This came after U.S. CPI printed a 3.4% for July, exactly in line with expectations.
Further adding to the dovish expectations, market odds of a September rate hike fell to 34% after the U.S. CPI data was released.
This is the lowest probability of a September rate hike since the 17th of July, with odds now half of what they were on the 27th. In essence, rate hike expectations have cooled significantly.
Maksym Sakharov, co-founder and CEO of the debanking infrastructure provider WeFi, told AMBCrypto,
The softer print is welcome since the Fed will have more breathing room for deciding on a rate hike, but one release will not settle the argument over the inflation path due to pre-built volatility.
However, these macro tailwinds might just be the tip of the iceberg.
Across social media, the narrative around a “Bitcoin bottom” and a potential “short squeeze” is heating up. From BTC’s technical setup, these narratives aren’t completely far-fetched either.
Echoing a similar narrative, Matt Mena, Senior Crypto Research Strategist at 21Shares, told AMBCrypto,
Bitcoin is testing support above $64k, retesting the level in the last few minutes after CPI came in line with expectations. With the odds of a September hike now down 25% MoM, this could be the relief Bitcoin needed to break $64k and push toward $66k.
Bitcoin continues to trade in a choppy range, with short liquidity building up and over $2.5 billion more shorts than longs. At the same time, on-chain signals are starting to point toward a stronger bottom setup.
So, for the market to rally, analysts expect Bitcoin may first need to flush short liquidity before gaining enough momentum for a breakout. Notably, this is where the lack of momentum after the U.S. CPI release begins to add weight.
