Bitcoin has been trading within a range during this week as investors and markets are bracing for Jerome Powell’s speech at the Jackson Hole symposium on Friday. Lately, cryptocurrencies have been following moves in stock markets, thus it is highly likely that they will also react to any dovish or hawkish surprise. Given the doom and gloom surrounding China and the latest downbeat PMIs across major economies, the risks for cryptos are asymmetrically tilted to the downside.
Cryptos regain risk-sensitive status
Last week cryptocurrencies suffered significant losses on the back of rising Treasury yields and a broader risk off mood in markets. This self-off came after a two-month period in which digital assets traded in their own world, exhibiting historically low volatility and immunity to macro catalysts, while failing to capitalise on the equity market’s exponential rally.
Therefore, latest indications suggest that cryptos are slowly tilting back towards their risk-sensitive profile, which was evident on two occasions this week. Firstly, digital assets followed equities higher after Nvidia boosted the broader market and especially tech stocks with its outstanding earnings report. Meanwhile, crypto prices have strictly obeyed moves in Treasury yields, solidifying that they are no longer unaffected by macroeconomic forces.
All eyes on Powell
Despite the near-term consolidation in crypto markets, Jerome Powell’s remarks at the Jackson Hole symposium could spark another wave of volatility. In his speech, Powell will probably outline the Fed’s updated view on the interest rate trajectory and inflation outlook following some diverging US data that have hit the markets lately.
According to the Atlanta Fed’s GDPNow model, the US economy is expected to grow 5.8% in the third quarter, while unemployment remains at record low levels and inflation is still running well above the Fed’s 2% target. This combination of macro catalysts increased bets that Powell could sound hawkish to deliver the message that the campaign against inflation is not over yet, but the disappointing PMIs that came out this week brought back the discussion about potential overtightening.
For crypto bulls, a dovish Powell could be the best scenario, but considering the broader uncertainty in global markets, the upside appears to be limited. Meanwhile, dovish remarks could accelerate the recent selloff and knock a lot of leveraged positions out of the market.
Calm before of the storm
From a technical perspective, BTCUSD dived below its 200-day simple moving average (SMA) for the first time since March before managing to halt its retreat. In the last few sessions, the price has been trading sideways, with traders awaiting the outcome of the Jackson Hole symposium for fresh directional impetus.
Should Powell strike a hawkish tone, Bitcoin could test the recent support of $25,350 before the June low of $24,750 comes under examination.
On the flipside, if the price reverses back higher, the bulls could target the $27,000 psychological mark ahead of the $28,550 hurdle.
