- Bitcoin, Ethereum prices rallied after US CPI data fell below expectations MoM, on January 12.
- Easing inflation indicates the Federal Reserve may reduce interest rate hikes, weighing on the US Dollar and helping cryptocurrencies.
- Wednesday’s Producer Price Index release could have a similar impact if data shows a drop in ‘factory gate’ prices.
The release of the latest US Producer Price Index (PPI) data, which measures factory gate price inflation, could significantly impact Bitcoin, Ethereum and other cryptocurrencies when it is released at 13:30 GMT on Wednesday, January 18. The econometric is seen as a forewarner of more general consumer price inflation since it measures the cost of goods after production, or the ‘wholesale’ price.
Will US Producer Price Index follow US CPI course?
Bitcoin and Ethereum prices witnessed a recovery after the release of US Consumer Price Index (CPI) data on January 12 showed an unexpected -0.1% fall in December on a month-over-month (MoM) basis. The data prompted a decline in the US Dollar and a rally in risk assets including many leading cryptocurrencies. This canceled out losses from the FTX exchange collapse and the DCG-Gemini scandal that have dogged the sector since November.
The question is, will the same thing happen when US PPI is released later today? And what exactly are the implications for cryptocurrencies from the data?
Also read: Will US CPI release whipsaw Bitcoin price to $16,500?
US PPI and CPI over the years
Effect of PPI on the US Dollar and cryptocurrencies
US Producer Price Index is expected to come out at 6.8% on a yearly basis and -0.1% on a monthly basis for December, based on surveys of economists.
The greatest impact on the US Dollar and cryptocurrencies will result from an unexpected rise in PPI. This is because market expectations are tilted towards expecting lower inflation, especially after December Consumer Price Index showed an unexpected decline during the same month, therefore a rise would take the market by surprise.
Important US economic data releases expected on Wednesday
If the US Producer Price Index reading is significantly higher than the consensus (more than 0.1% MoM or 0.2% YoY) then this could result in a substantial rally in the US Dollar and a fall in Bitcoin and other cryptocurrency prices. This is because it will mean the US Federal Reserve (Fed) may have to continue to implement aggressive interest rate hikes to curb inflation and this will support the US Dollar which is inversely correlated to cryptocurrencies (because they are priced in US Dollars).
If the PPI data meets consensus expectations, asset prices will probably remain largely unaffected, though there may be a slightly positive impact on the US Dollar and a negative impact on cryptocurrencies since the official survey expectations are now a bit out-of-date and do not factor in recent data, such as the below-expected CPI data released six days ago, on January 12.
A below-expectations result, especially if it is greater than the 0.1% divergence seen in the CPI release, would likely result in a fall in the value of the US Dollar and a rally in Bitcoin, Ethereum and many other altcoin prices.
What is the Bitcoin chart saying before the release?
Bitcoin price has risen sharply in January 2023, after plummeting to new lows following the FTX crisis last November. The leading crypto has rallied from $15,479 on November 21 to a new high of $21,594 on Tuesday, January 17 (yesterday).
There are indications the short-to-medium trend has changed for Bitcoin, after the break above the critical November 5 high $21,473, the last lower high before BTC bottomed, achieved this week. This break is a major sign the broader downtrend could be reversing.
BTC/USD price chart
On its way up in January, Bitcoin price has broken above all the key moving averages: the 50, 100 and 200-day Simple Moving Averages (SMA), and this is a further sign it could be reversing its longer-term downtrend.
BTC is overbought, however, according to the Relative Strength Index (RSI) which is currently well above 70 on the daily chart. RSI can remain in overbought states for some time before the market starts pulling back and, according to Welles Wilder, the market technician who designed the indicator, it is not until it has exited overbought and re-entered neutral territory, below 70, that a firm signal to sell can be inferred. Whilst it is in overbought, however, Wilder advised traders not to add to their longs. On the 4-hour chart above, however, the RSI has already fallen below 70, providing traders with a sell signal, and suggesting the possibility of a pullback on that timeframe.
A lower-than-anticipated or same-as-expected PPI, therefore, would certainly fall into line with the bullish narrative reflected in the charts, however, given the asset is already overbought, it could also have no effect or even a slightly bearish impact if the data continues to show lingering inflation. Prices rarely rise in a straight line and BTC price is certainly overdue a little correction.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended Content
Editors’ Picks
Polygon joins forces with WSPN to expand stablecoin adoption
WSPN, a stablecoin infrastructure company based in Singapore, has teamed up with Polygon Labs to make its stablecoin, WUSD, more useful in payment and decentralized finance.
Coinbase envisages listing of more meme coins amid regulatory optimism
Donald Trump's expected return to the White House creates excitement in the cryptocurrency sector, especially at Coinbase, the largest US-based crypto exchange. The platform is optimistic that the new administration will focus on regulatory clarity, which could lead to more token listings, including popular meme coins.
Cardano's ADA leaps to 2.5-year high of 90 cents as whale holdings exceed $12B
As Bitcoin (BTC) gets closer to the $100,000 mark for the first time — it crossed $99,000 earlier Friday — capital is rotating into alternative cryptocurrencies, creating a buzz in the broader crypto market.
Shiba Inu holders withdraw 1.67 trillion SHIB tokens from exchange
Shiba Inu trades slightly higher, around $0.000024, on Thursday after declining more than 5% the previous week. SHIB’s on-chain metrics project a bullish outlook as holders accumulate recent dips, and dormant wallets are on the move, all pointing to a recovery in the cards.
Bitcoin: Rally expected to continue as BTC nears $100K
Bitcoin (BTC) reached a new all-time high of $99,419, just inches away from the $100K milestone and has rallied over 9% so far this week. This bullish momentum was supported by the rising Bitcoin spot Exchange Traded Funds (ETF), which accounted for over $2.8 billion inflow until Thursday. BlackRock and Grayscale’s recent launch of the Bitcoin ETF options also fueled the rally this week.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.