(Kitco News) – Financial markets had a volatile start to trading on Friday after the latest Personal Consumption Expenditure (PCE) index report showed that core inflation slowed in April, rising 0.2% vs. the 0.3% increase seen in March, falling in line with Wall Street expectations.
Annual core PCE was also in line with estimates, up 2.8% year-over-year and unchanged from the annual increase seen in the last two months. April's monthly reading was the slowest month-over-month increase for the index of 2024.
Traders initially responded positively to the news with Bitcoin’s price (BTC) briefly spiking above $69,000 while the S&P, Dow, and Nasdaq all surged higher.
BTC/USD Chart by TradingView
But the gains were short-lived as some used the spike to offload their holdings amid uncertainty about the future of interest rates and general unease about the increase in geopolitical tension.
At the time of writing, Bitcoin trades at $67,245, with bears showing strength and looking to make another run at breaking the back of support at $67,000. The S&P and Nasdaq are down 0.42% and 1.11%, respectively, while the Dow is up 0.09%.
After dumping 0.5% from 104.9 to a low of 104.362 in early trading, the DXY spiked back to 104.59 following the PCE release and currently trades at 104.54. The U.S. 10-year Treasury yield is down 187 basis points on the day and trades at 4.487% at the time of writing.
“U.S. economic data continues to be in the spotlight, with employment, retail sales, and inflation figures all coming in softer than analysts expected,” said analysts at Ryze Labs. “Additionally, the past three U.S. Treasury auctions saw weak participation, causing 10-year Treasury yields to rise sharply. This could be attributed to higher-than-average Treasury issuance in May.”
“However, the Federal Reserve has reduced its quantitative tightening by $35 billion a month, meaning there will be $35 billion more demand for Treasuries in June,” they noted. “We remain optimistic that Fed liquidity will increase toward the year’s end as policy turns to bolster softer economic data.”
Bullish signs amid consolidation
"After a massive surge last week, the market is currently stabilizing at a higher level,” said Rachel Lin, co-founder and CEO of SynFutures, in a note to Kitco Crypto. “Both Bitcoin and Ethereum are down approximately 2.5% compared to a week ago. The altcoin market also mirrors the performance of the big two. This shift suggests a cooling of last week's euphoria as the market assesses the long-term implications of the Ethereum ETF approval.”
Lin said Bitcoin’s consolidation above $66,000 is a good sign and sets the stage for a rally in the second half of 2024.
“Despite the tempered market sentiment, the fundamentals continue to improve rapidly,” she said. “Following the ETH ETF announcement, we have seen supportive political statements from both major US parties regarding the cryptocurrency ecosystem. American celebrities are re-engaging with crypto for the first time since the FTX collapse in November 2022.”
“Moving from fundamentals to technicals, when we examine the derivatives data, we notice that the highest open interest for Ethereum is currently in the June 5000-Call option,” Lin noted. “Furthermore, the open interest is 65% for calls versus 35% for puts. This indicates the market expects a 33% potential increase in ETH price in the next month.”
“While Bitcoin's options data is less bullish, it still shows a strong upward bias, with the top three open interest being the June 75000, 80000, and 85000 Calls,” she said. “So, it's fair to say the options market has a bullish outlook for June, even as the spot market consolidates.”
“One of the best times to enter the market is when the fundamentals have turned bullish but it's yet to be reflected in the price,” Lin concluded. “We observed a similar pattern in mid-2023, after the Bitcoin ETF announcement when the price just hovered between the 25,000 to 30,000 range for several months and then had an explosive breakout up to 73,000. If the current trend persists, we may be on the brink of another bullish rally in the near future.”
Legendary trader Peter Brandt also sees the potential for a breakout in the near future, but presented his position subtly, asking his X followers if the current chart formation qualifies as a cup and handle formation, which is considered bullish.
Question for those IBD/William O'Neil devotees among you.
Does this qualify as a Cup and Handle?
If not, please provide brief explanation
Thanks in advance$BTC pic.twitter.com/8ReVQZ2B0O— Peter Brandt (@PeterLBrandt) May 31, 2024
And crypto investor Quinten zoomed out to put the current state of the market into perspective while encouraging his followers to exercise some patience.
It’s so obvious, you just need some patience #Bitcoin $BTC pic.twitter.com/JLzEvRNqqv
— Quinten | 048.eth (@QuintenFrancois) May 30, 2024
