What can crypto traders expect from Thursday’s US CPI?

Bitcoin (BTC) price has remained relatively stable at around $28,000 for the past few days but has undergone selling in the last 24 hours. The United States Consumer Price Index (CPI) will be released on Thursday at 12:30 GMT, and this event is likely to cause a further spike in volatility.

Also read: Week ahead: Fed speech and NFP likely to dictate crypto market moves this week

What is the CPI and why does it matter?

The CPI, as the name suggests, is a price index of the average market basket of consumer goods and services. Changes in CPI are used to measure inflation. 

Since the pandemic, Bitcoin price action has been extremely sensitive to US macroeconomic events due to the ebb and flow of liquidity, aka Greenbacks. Hence, the US CPI, as well as the US Nonfarm Payrolls (NFP), are a few macroeconomic events that have a high influence on Bitcoin price. 

Depending on the headline inflation number, the interest rates in the US are going to be changed by the Federal Reserve, which further affects the flow of US Dollars and Bitcoin price as a result. The NFP numbers showed an addition of 336,000 jobs in September, which was a huge upside surprise for the Fed. The economists had been expecting a slowdown in new hiring. Hence, the pressure is already on the Fed to tame inflation, and the CPI release on Thursday will be another key event that will make or break the Fed’s decision to raise or keep interest rates steady. 

Currently, analysts are expecting the headline inflation number to come in at 3.6%, slightly lower than the previous month’s number of 3.7%. 

What to expect from US CPI? 

Before getting into what to expect from the US CPI, let’s recap important events 

• PCE Price Index YoY (Actual vs. Forecast): 3.5% vs. 3.5%
• Nonfarm Payrolls: 336K vs. 170K
• Increasing inflation numbers for July and August
• Federal Reserve: In September, the Fed did not raise rates, but Chairman Jerome Powell mentioned that “inflation has moderated” and that expectations “appear well-anchored.” Powell also added they were “prepared to raise rates further if appropriate."

In the September meeting, the chairman also mentioned that they will keep rates restrictive until they are confident that inflation is moving down to 2%.

With all these key points in mind, let us explore possible outcomes.

US CPI remains the same at 3.7%:  This probability is not high, considering that the inflation numbers spiked in July and August due to a 10% hike in gas prices.

This development could cause a short-term rally in the US Dollar, causing Gold and stocks to suffer, albeit in the short term. Bitcoin (BTC) price, however, might dip in the short-term but recover the losses quickly. 

US CPI comes in greater than 3.7%: This development would suggest a third-consecutive increase in inflation and catalyze a US Dollar rally. The spike in inflation would cause a risk-off from investors, causing Gold, stocks and Bitcoin to tumble. 

US CPI comes in lower than 3.7% or 3.6%: In such a case, the US Dollar would not see strong demand, which would allow the risk-on assets to rally. 

Bitcoin key price levels to watch for CPI traders

• Overhead resistance level, extending from $27,300 to $27,400.
• Key support level, extending from $26,400 to $26,500. 

BTC/USDT 1-day chart

Depending on the US CPI numbers released on Thursday and the data gathered thus far, the Fed will make its decision on interest rates on November 1, which will affect the US stock market and other connected assets.