The constant interaction between traditional macroeconomics and the crypto market has just reached a new decisive milestone on an international scale. While the American Federal Reserve (Fed) has maintained a rigorous monetary policy for months, the publication of the latest economic indicators has shaken up all of investors’ certainties. This Tuesday, July 14, at the opening of the Wall Street session, the price of the main crypto recorded an upward impulse, once again crossing the major psychological resistance of $64,000. This responsiveness reveals the persistent dependence of assets on US macroeconomic data, particularly the evolution of inflation.
In brief
- The crypto queen reacts immediately to the opening of Wall Street after the publication of American inflation figures.
- The CPI index fell to 3.5% in June, breaking the consensus of analysts who expected 3.8%.
- Energy costs fall 5.7%, neutralizing global geopolitical tensions and the blockage of the Strait of Hormuz.
- Markets anticipate a more flexible posture from the Fed, even if the FedWatch tool maintains a forecast for a rate increase of 0.25% in September.
A surprise drop in the CPI driven by the energy sector
The publication of the consumer price index (CPI) for the month of June created a major surprise on the financial markets by standing at 3.5%, while the consensus of analysts initially expected a higher figure of 3.8%.
This unexpected drop represents the largest monthly decline recorded in US inflation since April 2020, according to the official report from the U.S. Bureau of Labor Statistics (BLS). The main factors relating to this announcement are as follows:
- A historic collapse in energy costs: this sector has managed to counterbalance the constant rise in other key components of current consumption. According to the precise terms of the official BLS publication: “the energy index fell by 5.7% in June after increasing by 3.9% in May, 3.8% in April and 10.9% in March”;
- Resilience in the face of geopolitical crises: markets feared the repercussions of the conflict between the United States and Iran, marked in particular by the Strait of Hormuz. However, the impact on the overall index has been neutralized;
- Major sectoral compensation: the US Bureau of Labor Statistics has explicitly highlighted the extent of this role by stipulating that: “the energy index was the main contributor to the monthly decline in all items, largely offsetting increases in other indices, notably housing and food”.
This lull on the consumer price front caused an immediate positive reaction across risk assets, propelling traditional stock indices and the crypto market into the green.
A flexible monetary shift and the trap of massive liquidations
The easing of inflationary pressures immediately changed investors’ expectations regarding future financial policy decisions by the US central bank. The odds of prolonged monetary tightening have collapsed, giving way to a more accommodative view from investors.
Renowned economist Mohamed El-Erian sharing his analysis of the situation on social network “this release should help temper what had become an excessively hawkish market tilt towards the outlook for monetary policy”. However, despite this breath of fresh air, caution remains in order since the CME Group’s FedWatch Tool indicates that the market still maintains a consensus forecasting a rate increase of 0.25% for the Fed meeting in September.
On a strictly technical level, this upward movement surprised a significant number of speculators who were banking on the continuation of a downward trend. On-chain data reveals that liquidations of leveraged short positions exceeded $220 million across the entire crypto market in the span of 24 hours. The market remains trapped in a broad consolidation zone, prompting technical analysts to moderate their short-term optimism.
The analyst known as Exitpump tempered the general enthusiasm in his latest publication by stating that: “Sellers have not been able to push prices down due to high passive demand, and we are now seeing short positions slowly close, forcing the price higher”.
He concluded his observations by recalling the reality of the current structure of bitcoin: “we are still in a range trading environment”.
Uncertain outlook for bitcoin
The short-term future of bitcoin will therefore depend on its ability to transform this technical rebound into solid and lasting support above the psychological threshold of $64,000.
While the decline in inflation provides an undeniably favorable macroeconomic narrative for growth assets, the persistence of a possible rate hike in September shows that overall liquidity remains constrained. Investors should expect increased volatility until the upper limit of the current fluctuation zone is crossed with convincing buying volumes.
A nuanced analysis requires close monitoring of the upcoming US employment data and the declarations of Fed governors, which will validate or refute this wind of optimism on the crypto markets.
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