(Kitco News) – Financial markets from Bitcoin (BTC) to stocks faced downward pressure in early trading on Tuesday as investor attention is focused squarely on tomorrow's Fed rate decision and Consumer Price Index (CPI) report, with early estimates predicting that CPI is forecast to rise 0.1% in May after increasing by 0.3% in April. The CPI year-over-year (y/y) is expected to rise 3.4%.
Core CPI is forecast to rise 0.3% in May, equalling the rise seen in April, while the y/y core CPI is expected to rise 3.5%, after rising 3.6% in April.
“Gasoline and oil prices really ticked down hard in May,” said José Torres, senior economist at Interactive Brokers. “That’s a favorable development for headline inflation.” He said he expected the overall inflation number to rise 0.12% and core inflation to rise 0.32%.
“CPI numbers have established a higher ‘floor’ than we’ve seen in a couple decades,” said Mark Vickery, an analyst at Zacks. “The Inflation Rate – that is, year over year headline CPI (not core) – two years ago was +9.1%, higher than at any point in the U.S. since November of 1981, based on heavy supply chain problems in the wake of the pandemic clouds lifting. Since June ’22, we have seen the Inflation Rate come down 570 basis points (bps), which is impressive, but only to +3.4% – still notably above the Fed’s target inflation rate of +2%.”
“Some people feel a big CPI surprise will change the Fed’s mind tomorrow,” he added. “Even if we do get such a surprise, we’re still going to be a measurable distance from an optimal situation for the Fed to go about cutting rates. If we’re putting odds on this? Forget June, still. July may still be too soon. And September might be too close to the election. But only then will we have stayed at +5% or above for as long as we had the last time.”
Vickery said, “There is basically a 0% chance the Fed moves from its ongoing 5.25-5.0% Fed funds rate, which has been in place since the FOMC’s July 2023 meeting.”
JPMorgan analysts led by Michael Feroli wrote on Friday that they “expect Chair Powell will express confidence that the economy is still on a path toward a sustained recovery with inflation heading toward two percent – and that they can remain patient as they expect to gradually gain more confidence in that outlook.”
“We feel it is unlikely that inflation data will soften enough over the coming months to enable the Fed to cut before December,” they wrote.
The CME FedWatch Tool shows the market sees a 52% chance of a rate cut in September, 66% in November, and 88% in December.
Amid the focus on CPI and concerns among some that there will be no interest rate cuts in 2024, cryptos have fallen under pressure, with Bitcoin breaking below support at $69,500 in the early hours on Tuesday and sliding 4.35% lower, bottoming out at $66,493.
BTC/USD Chart by TradingView
The sell-off follows the first net outflow day from spot BTC exchange-traded funds (ETFs) in a month. The 11 listed ETFs had enjoyed 19 consecutive days of positive flows prior to Monday, according to data provided by Farside Investors.
Last week, market analyst Castillo Trading posted the following tweet warning about getting too bullish as Bitcoin’s price climbed above $70,000, saying that the optimal price to look for a long at is around $64,197.
Would be hard lesson. But as $BTC breaks into $70k again, still isn't an area I want to take fresh longs.
I want a discount on my longs, not paying a premium. Best area for fresh longs on $BTC is $64,197 nPOC print for me. Not sure it plays out, but is where I am willing to add. pic.twitter.com/VkGmuBJ2nn— Castillo Trading (@CastilloTrading) June 4, 2024
“To be clear, I am still long $BTC,” he said in a follow-up tweet. “Just because I don't want to open up fresh longs at $70k doesn't mean I am bearish at all. This is just an area I am willing to buy the dip at based on my system. If we go higher, I profit. If we go lower, I get to buy more cheaper. Simple.”
Scott Melker, host of The Wolf of All Streets podcast, said Tuesday’s pullback was “much ado about nothing,” highlighting that the current price action is par for the course after a Bitcoin halving.
$BTC Daily
Much ado about nothing.
Decent drop today, but simply testing support at the range EQ - still trading in the top half of the range.
3 months into the predictable chop that comes with this part of the cycle. pic.twitter.com/pFqwwJpNlR— The Wolf Of All Streets (@scottmelker) June 11, 2024
And Crypto El Presidente noted a promising sign on the long-term chart, highlighting that Bitcoin has only been this oversold twice since the FTX crash in late 2022.
$BTC has been to this degree oversold on the H1 timeframe only twice since the FTX crash.
December 11th 2023 and January 22nd 2024 (depicted by vertical dotted lines.) pic.twitter.com/p9zdKYUxL4— Crypto El Presidente (@CryptoElPres) June 11, 2024
At the time of writing, Bitcoin trades at $66,242, a decrease of 5.51% on the 24-hour chart.
