FX.co ★ On the edge of the abyss: How will inflation data affect Bitcoin's price movement?

Over the past three days, Bitcoin has lost about 8% of its market capitalization, reaching the $27k level. The cryptocurrency continues to hold the lower boundary of the key accumulation zone, where more than 560,000 BTC has been accumulated in the last two months. Despite this, bearish sentiment is increasing, which may lead to a breakdown of this level.

As of 08:00 UTC on May 10, the cryptocurrency market froze in anticipation of inflation statistics, which will be released at 12:30. Bitcoin is holding the $27k level but the situation may change dramatically after the CPI report is published.

Inflation's impact on BTC

Bitcoin finds itself in an ambiguous situation, as on one hand, high inflation levels provoke interest in BTC as a store of value. On the other hand, the cryptocurrency depends on the Federal Reserve's policy and also suffers from the liquidity crisis, while a decrease in CPI would allow the regulator to cease balance sheet reductions.

At the same time, Bitcoin has an inverse correlation with the U.S. Dollar Index, which weakens when inflation levels rise. Analysts predict that CPI will remain at 5%, with no deflationary movement in April.

If inflation remains at the current level or increases, it will set the stage for a downward movement in BTC/USD to at least the $26.5k level. However, if inflation continues to decline, the cryptocurrency will also experience a local drop, as deflationary movement will strengthen the U.S. Dollar Index.

However, in the medium term, Bitcoin will benefit from lower inflation, as its dependence on the Federal Reserve's policy and key interest rates is much higher. At the same time, given the strength of the labor market, a decline in inflation does not guarantee a pause in the rate hike cycle.

Threat to Bitcoin's upward trend

As of May 10, there is no threat to Bitcoin's upward structure, but the asset price is close to the lower boundary of the key accumulation level at $27k. If this level is breached, BTC will head for a retest of the $26k–$26.5k level, where the final support zone lies.

If the $26k–$26.5k level is breached, the price will head for a retest of the $25k level, where the bottom of Bitcoin's upward trend is located. A bearish breakthrough and consolidation below $25k will trigger the destruction of the upward structure and, consequently, a local trend reversal.

Over the past three months, Bitcoin has been extremely close to the likely completion of the local upward trend. Disappointing inflation data could act as a catalyst for further downward movement. Considering this fact, today's CPI data may significantly impact the bullish trend of BTC.

BTC/USD analysis

As of 08:00 UTC, Bitcoin is trading near the $27.5k level, and in the past two days, the volatility and trading volumes of the asset have dropped to a low. If the deflationary movement results are negative, BTC/USD may continue its downward movement and break through the $27k level.

Technical indicators for the cryptocurrency indicate a decrease in trading activity. The Stochastic has dropped into the bearish zone, confirming significant selling pressure. The RSI is moving flat above the 40 level, and the MACD has formed a bearish crossover and entered the red zone.

Bitcoin appears bearish, and today will determine the further price movement dynamics. Among the positive scenarios, it is worth mentioning the high probability of a decline below $26k to absorb large volumes of liquidity, followed by a recovery above the $27k level.

Conclusion

Bitcoin depends on macroeconomic factors and the actions of the Federal Reserve, so today will be crucial in determining the future prospects of the cryptocurrency. Most likely, the inflation data will be better than expected, allowing BTC to resume its upward movement and head for a retest of $30k.