Source: PaxForex Premium Analytics Portal, Fundamental Insight
Bitcoin extended its plunge below the 20,000 level and continues to drag the cryptocurrency sector lower. Adding downside pressure on cryptocurrencies is Ethereum after it completed its long-awaited and delayed Merge, with price action racing toward 1,000. The ongoing Bitcoin plunge comes despite news that $10 trillion+ asset manager Fidelity will offer Bitcoin to its clients, suggesting that demand remains absent as the sector continues to bleed capital in the short-term.
Before Bitcoin enthusiasts sweep in and try to catch a falling knife, the hawkish US Fed could add to selling pressure as it is likely to raise interest rates by 75 basis points for the third consecutive meeting. Some argue that a 100 basis point increase remains on the table, but given the weakening US economic data, the likelihood is slim. With inflation spiraling out of control, as evident in the CPI for August, which rose above expectations despite a plunge in gasoline prices, the US central bank is on course to raise interest rates to 4.50%. It will keep downside pressure on Bitcoin and other cryptocurrencies.
Cryptocurrencies like Bitcoin and Ethereum, which are in institutional and retail portfolios, face the most selling pressure, as the equity sector extends its bear market, with the lows set in June acting as a magnet for price action. Margin calls in equity portfolios result in selling non-essential assets like Bitcoin, which is well-positioned for a 25%+ plunge from current levels. As the global economy races towards a recession, with heightened fears following the warning of FedEx last week following a dismal quarter and withdrawn full-year outlook, Bitcoin remains vulnerable to an extended sell-off. A breakdown below its next horizontal support area is also possible depending on further developments.
The forecast for the BTC/USD remains bearish as price action has plenty of downside momentum to complete a breakdown below its horizontal support area. Adding to the negative outlook are the descending Kijun-sen and Tenkan-sen. Volatility could rise as bulls and bears face off at the psychologically important 20,000 level. The Ichimoku Kinko Hyo Cloud completed a bearish crossover, but the Senkou Span A began to ascend, adding to the expected increase in volatility. Traders should monitor the CCI as it approaches extreme oversold territory. It has plenty of room to extend its contraction. Can bears continue to force the BTC/USD towards its next horizontal support area? Subscribe to the PaxForex Daily Fundamental Analysis and earn over 5,000 pips per month.
Should price action for the BTC/USD remain inside the or breakdown below the 18,470 to 19,470 zone, PaxForex recommends the following trade set-up:
- Timeframe: D1
- Recommendation: Short Position
- Entry Level: Short Position @ 18,745
- Take Profit Zone: $14,395 – $15,700
- Stop Loss Level: 20,650
Should price action for the BTC/USD breakout above 19,470, PaxForex recommends the following trade set-up:
- Timeframe: D1
- Recommendation: Long Position
- Entry Level: Long Position @ 20,650
- Take Profit Zone: 21,835 – 22,690
- Stop Loss Level: 19,470
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