BTC and Sub-$25,500 Hinged on US Inflation and Debt Ceiling Talks

Key Insights:

• On Thursday, BTC gained 0.58% to end the day at $26,498.
• Reports of progress toward raising the US debt ceiling and crypto news from China limited the impact of a jump in hawkish Fed bets for June.
• However, the technical indicators remain bearish, signaling a fall to sub-$25,000.

On Thursday, bitcoin (BTC) rose by 0.58%. Partially reversing a 3.30% slide from Wednesday, BTC ended the day at $26,498. Significantly, BTC revisited sub-$26,000 for the first time since May 12.

A bearish start to the day saw BTC slide to an early morning low of $25,886. Finding support at the First Major Support Level (S1) at $25,861, BTC rose to an early evening high of $26,644. However, falling short of the First Major Resistance Level (R1) at $27,033, BTC eased back to end the day at $26,498.

China Crypto News Offsets Fed Fear

It was a busy Thursday session. US economic indicators and debt ceiling talks were in focus. The US economic indicators fueled bets of a 25-basis point Fed interest rate hike in June.

Initial jobless claims increased from 225k to 229k versus a forecasted 250k. Upward revisions to the Q1 GDP numbers were also bullish. The US economy expanded by 1.3% in Q1 versus a prelim 1.1% and 2.6% growth in Q4.

According to the CME FedWatch Tool, the probability of a 25-basis point Fed interest rate hike in June jumped from 36.4% to 52.2% on Thursday. Better-than-expected labor market and GDP numbers supported the shift in sentiment ahead of today’s inflation numbers.

Reports of progress toward raising the US debt ceiling were also positive, though investors remained cautious, with talks having stalled previously.

On Thursday, the NASDAQ Composite Index gained 1.71%, with the S&P 500 rising by 0.88%. However, the Dow fell by 0.11%. This morning, the NASDAQ mini was down 16.75 points.

The crypto news wires also delivered support. On Wednesday, Binance CEO CZ shared a link to a China Central Television broadcast on crypto, saying,

“CCTV (China Central Television) just broadcasted crypto. It’s a big deal. The Chinese-speaking communities are buzzing. Historically, coverages like these led to bull runs. Not saying past predicts the future. And not financial advice.”

While the broadcast is no longer available, the news followed the HK Securities and Futures Commission’s announcement that retail investors could trade crypto from June 1.

The Day Ahead

It is a busy Friday session. Core durable goods orders, Core PCE Price Index, personal spending/income, and Michigan consumer sentiment numbers will be in focus.

We expect the Core PCE Price Index numbers to have the most impact. Sticky inflation would fuel bets of a 25-basis point Fed interest rate hike in June and ease expectations of an H2 interest rate cut.

Economists forecast the Core PCE Price Index to increase by 4.6% year-over-year in April versus 4.6% in March.

Beyond the economic calendar, US debt ceiling-related news will remain the key driver. The threat of US default will likely cap market expectations of a June Fed interest rate hike and pressure riskier assets.

However, investors should also track SEC v Ripple updates and Binance and Coinbase (COIN)-related news.

Bitcoin (BTC) Price Action

This morning, BTC was down 0.04% to $26,487. A mixed start to the day saw BTC rise to an early high of $26,520 before falling to a low of $26,409.

BTC Technical Indicators

Resistance & Support Levels

BTC needs to avoid the $26,343 pivot to target the First Major Resistance Level (R1) at $26,799. A move through the Thursday high of $26,644 would signal an extended bullish session. The US economic indicators and US debt ceiling-related news should be crypto-friendly to support an extended rally.

In the event of an extended rally, BTC would likely test the Second Major Resistance Level (R2) at $27,101 and resistance at $27,500. The Third Major Resistance Level (R3) sits at $27,859.

A fall through the pivot would bring the First Major Support Level (S1) at $26,041 into play. However, barring a risk-off-fueled sell-off, BTC should avoid sub-$25,500. The Second Major Support Level (S2) at $25,585 should limit the downside. The Third Major Support Level (S3) sits at $24,827.

Looking at the EMAs and the 4-hourly candlestick chart (below), the EMAs were bearish. BTC sat below the 50-day EMA ($26,819). The 50-day EMA fell back from the 100-day EMA, with the 100-day EMA easing back from the 200-day EMA, sending bearish signals.

A move through R1 ($26,799) and the 50-day EMA ($26,819) would give the bulls a run at R2 ($27,101) and the 100-day EMA ($27,126). However, failure to move through the 50-day EMA ($26,819) would leave S1 ($26,041) in view. A move through the 50-day EMA would send a bullish signal.