Federal Reserve Forward Guidance Delivers Bitcoin (BTC) Support

Key Insights:

• On Wednesday, Bitcoin (BTC) rallied by 5.18% to end the day at $39,680.
• Market reaction to Fed monetary policy and forward guidance drove BTC to a day high of $40,004.
• Bitcoin’s technical indicators are less bearish, with Bitcoin sitting above the 100-day EMA.

The Federal Reserve delivered riskier assets a much-needed boost on Wednesday. Late in the US session, the Fed lifted rates by 50 basis points to 1.0%, in line with forecasts.

Federal Reserve Chair Powell looked to ease market tensions by reining in expectations of an aggressive rate path trajectory to policy normalization.

Bitcoin (BTC) rallied by 5.18% on Wednesday. Reversing a 2.05% loss from Tuesday, BTC ended the day at $39,680. Resistance at $40,000 pegged back BTC late in the day.

The correlation between Bitcoin and the NASDAQ 100 strengthened, with both under the influence of the Federal Reserve.

Bitcoin Fear & Greed Index Hits Reverse

Supported by the BTC breakout, the Fear & Greed Index rose from 21/100 to 27/100 to return to the “Fear” zone. On Tuesday, the Index fell to 21/100 and into the “Extreme Fear” zone ahead of Wednesday’s policy decision.

Last month, the Index hit a month high of 53/100 on April 05, which coincided with Bitcoin revisiting $47,000 levels Tuesday’s revisit to April’s low of $37,727.

The “Fear” and “Extreme Fear” zones reflect investor expectations of further price deterioration.

For the Bitcoin bulls, the Index will need to move back through to 46/100 to bring April’s high of $47,433 into play.

Bitcoin Correlation with the NASDAQ 100 Strengthens

The correlation between Bitcoin and the NASDAQ 100 strengthened on Wednesday after briefly weakening.

Going into Wednesday, investor focus was on the Federal Reserve monetary policy decision and forward guidance. On Wednesday, we viewed a further decoupling of BTC from the NASDAQ as unlikely.

Moves across the NASDAQ and BTC were aligned, as investors responded favorably to Fed Chair Powell’s forward guidance.

On Wednesday, Fed Chair Powell changed tact, delivering a less hawkish outlook on monetary policy. Powell removed a 75-basis point rate hike from the table, which supported riskier assets.

In response, the NASDAQ ended the day up 3.19%.

Bitcoin Price Action

At the time of writing, Bitcoin was down by 0.23% to $39,587.

Technical Indicators

Bitcoin will need to avoid the day’s $39,117 pivot to target the First Major Resistance Level at $40,564. Bitcoin would need broader market support to return to $40,000.

In the event of an extended rally, Bitcoin could test the Second Major Resistance Level at $41,455 and resistance at $41,500. The Third Major Resistance Level sits at $43,793.

A fall through the pivot would bring the First Major Support Level at $38,225 into play. Barring another extended sell-off, Bitcoin should avoid sub-$38,000. The Second Major Support Level sits at $36,773.

Looking at the EMAs and the 4-hourly candlestick chart (below), the signal is less bearish. Bitcoin sits above the 100-day EMA, currently at $39,485. This morning, we saw the 50-day EMA narrowed to the 100-day EMA, delivering support. The 100-day EMA closed in on the 200-day EMA, BTC positive.

A hold above the 100-day EMA would support a return to $40,000.