As a seasoned researcher with over two decades of experience in financial markets, I have seen my fair share of economic cycles and market volatility. The upcoming PCE inflation data for July is shaping up to be another interesting development in this ever-evolving landscape.
Economists predict that the U.S. Federal Reserve’s primary measure of inflation, Personal Consumption Expenditures (PCE), may slightly exceed expectations. If this occurs, it could lead the Federal Open Market Committee (FOMC) to reconsider implementing Fed rate cuts in September once more. This speculated increase in PCE inflation might also intensify selling pressure on Bitcoin and Ethereum prices.
Economists Estimate PCE Inflation at 2.6%, Core PCE at 2.7%
On this coming Friday, August 30th, the U.S. Bureau of Economic Analysis will publish the inflation rate data for July based on Personal Consumption Expenditures (PCE). Economists predict that this annual PCE figure will be around 2.6%, an increase from last month’s 2.5%. Additionally, they anticipate a monthly rise in the PCE of 0.2%, compared to the 0.1% increase seen in the previous month.
It’s anticipated that the monthly increase in the yearly core Personal Consumption Expenditures (PCE), not including food and energy costs, will be 0.18%. On an annual basis, this is expected to amount to a 2.7% rise. These forecasts are slightly higher than June’s PCE figures, but the markets believe that inflation will continue to decrease overall.
According to José Torres, a senior economist at Interactive Brokers, as mentioned in Morningstar, we can expect ongoing advancements in inflation due to decreasing costs for goods, as well as crude oil and gasoline. Yet, it’s important to note that the prices of crude oil, natural gas, and gold are experiencing a surge today, causing traders to exercise caution.
If the Personal Consumption Expenditures (PCE) inflation rate increases, it’s possible that both Bitcoin and Ethereum prices could decrease. Such a drop might lead to a wider sell-off or liquidation within the cryptocurrency market.
Will Fed Start Rate Cuts in September?
On September 12, the European Central Bank (ECB) might decide to lower interest rates again. This move could offer additional guidance to traders before the Federal Reserve plans its own rate cuts on September 18. ECB officials have hinted that a rate reduction is imminent, and everyone will be watching the inflation data for France, Italy, and the wider Eurozone, which will be released this Friday.
According to the Federal Reserve Chairman, Jerome Powell, it is anticipated that there will be three interest rate reductions this year, possibly starting as early as September. Yet, if the Personal Consumption Expenditures (PCE) inflation and employment data show improvement in the coming months, the Fed may postpone these rate cuts until November.
Currently, both the stock and cryptocurrency markets are experiencing fluctuations as traders monitor Nvidia’s earnings and PCE inflation figures. Interestingly, Nvidia’s shares dropped approximately 7% in extended trading, despite surpassing revenue and earning expectations. However, the company’s forecast for the current quarter fell short of investor expectations, leading to this decline.
According to the CME FedWatch data, there’s approximately a 65.5% chance that interest rates will be reduced by 0.25 percentage points in September. Moreover, the data suggests a predicted reduction of 1.00 percentage point in total interest rates for this entire year.
At any given time, the Buffett Ratio (Market Value of U.S. Stocks divided by Gross Domestic Product) offers a rough estimate of stock prices’ relative cost throughout history.
It’s now sitting at ~200%.
“If the ratio approaches 200%, as it did in 1999, you are playing with fire.” – W. Buffett
— Geiger Capital (@Geiger_Capital) August 28, 2024
Bitcoin and Ethereum Price Under Pressure
The cost of Bitcoin soared by 2% from its lowest point over the past day ($58,637), now standing at $60,142. This surge occurred following a breakout on lower time frames. Additionally, trading volume has dropped by 23% during the same period, suggesting reduced enthusiasm among traders.
In simpler terms, the Bitcoin’s NVT Golden Cross (a metric used in CryptoQuant) hasn’t been able to exceed its highest point before. This suggests that the current upward trend might be weakening. For the positive momentum to return, the NVT Golden Cross needs to surpass its old peak while receiving backing from investors, also known as bulls.
Additionally, options for Bitcoin valued at approximately $3.65 billion and Ethereum options worth around $1.35 billion are due to expire on the major derivatives exchange Deribit. This could potentially lead to more long liquidations in both BTC and ETH, possibly sparking a market adjustment in response to the upcoming US PCE inflation data.
In the last day, I’ve noticed that the price of ETH surged approximately 2%, now standing at $2,570. Additionally, Ethereum experienced a breakout within an hour timeframe. However, it’s worth noting that the trading volume has dropped by about 25% over the same period.
As a researcher examining Ethereum’s daily performance, I observe that its current price is encountering robust resistance. The Relative Strength Index (RSI) hovers around 41, suggesting a neutral trend. Interestingly, the Fibonacci Retracement suggests a rebound at the 0.236 level, which translates to approximately $2,450. There’s a possibility that the price might dip again towards the levels leading up to the ETH options expiry, as per Deribit data, due to a higher max pain point identified at around $2,800.
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2024-08-29 15:44