Bitcoin Price Movement Tied to Upcoming US Economic Indicators

U.S. Manufacturing Data and Dollar Weakness: A Boon for Bitcoin

The upcoming U.S. manufacturing data release on Tuesday is expected to show continued contraction in factory activity, signaling weakness in the dollar index and strength in bitcoin.

Understanding the Key Metrics

The Institute of Supply Management’s (ISM) manufacturing purchasing managers’ index (PMI) will be a crucial metric to watch this week. The consensus forecast suggests that the PMI will rise to 47.5 from July’s 46.8, which marked the sharpest contraction in factory activity since November 2023.

Implications for Risk Assets and Bitcoin

A weak reading in the ISM PMI will strengthen the case for a rate cut by the Federal Reserve, sending the dollar lower and boosting demand for riskier assets, including cryptocurrencies. Interest-rate markets are already pricing a 70% chance of a 25 basis point cut and a 30% chance of a 50 basis point cut in September, according to CME’s FedWatch tool.

Rate Cuts and Bitcoin

Noelle Acheson, author of the popular Crypto Is Macro newsletter, notes that rate cuts are beneficial for bitcoin as it is particularly sensitive to monetary liquidity conditions. "A weaker U.S. dollar is good for BTC, as it tends to boost monetary liquidity by lowering the cost of capital," she said.

Dollar Weakness and Its Impact on Bitcoin

The ongoing decline in the dollar index has already boosted demand for riskier assets, including cryptocurrencies. The dollar weakness has also highlighted the utility of a dollar hedge, which should increase spending power and interest in other jurisdictions.

Key Metrics to Watch

ISM manufacturing PMI (Tuesday)
Nonfarm payrolls (Friday)
JOLTS job opening data (Wednesday)
ISM services PMI, ADP, and weekly jobless claims (Thursday)

Technical Analysis: Bearish Momentum in Bitcoin

From a technical analysis viewpoint, bitcoin is on the defensive ahead of the key data releases. Indicators like the MACD histogram point to strengthening downside momentum.

The MACD is showing increasingly negative momentum, while the RSI is at a neutral level. The lower band of the Bollinger Bands remains around $56,000, indicating potential further declines toward this level.

Impact on Market Pricing

Analysts at ING note that if the consensus forecast about Friday’s jobs report is correct (165,000 job gains and a drop in the unemployment rate to 4.2%), then market pricing will firm up just a 25 basis point cut as the start of the Fed easing cycle.

However, according to ING’s U.S. economists, the payrolls could show additions of just 125,000 and an uptick in the jobless rate to 4.4%, resulting in a continued drop in the U.S. dollar.

Conclusion

The upcoming U.S. manufacturing data release will be crucial in determining whether the dollar resumes its two-month weakening trend. A weak reading will strengthen the case for a rate cut, sending the dollar lower and boosting demand for riskier assets, including cryptocurrencies. Bitcoin is likely to benefit from the ongoing decline in the dollar index, making it an attractive investment opportunity.

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