Softer CPI Lifts Bitcoin, War Caps the Rally

BTC stalls at key resistance as softer inflation improves the technical outlook

Bitcoin briefly surpassed the key hurdle at $65K before cooling off and retreating below the level, in what seems to be yet another failed breakout attempt. The rally followed softer US Consumer Price Index (CPI) data on Tuesday, and faded once tensions in the Middle East flared up again.

US inflation is tightly correlated with the crypto market because rising prices can lead the Federal Reserve to adjust the interest rate upwards. A higher interest rate affects liquidity and usually drives investors towards risk-off assets. Bitcoin is a risk-on asset that benefits from low interest rates, so anything that increases the chance of a rate hike affects it negatively.

All four CPI readings came below the previous value and below expectations, but the Fed usually pays more attention to the Core versions, which exclude food and energy from the calculation. The month-on-month Core CPI posted a 0.0% change (previous 0.2%; forecast 0.2%) and the year-on-year Core CPI showed inflation at 2.6% (previous 2.9%; forecast 2.8%).

At the time of writing, the probability of a rate hike in July is just 10%, down from almost 25% a week ago, according to the CME FedWatch tool. The probability of a rate hold in September is now 48.5%, up from 37% a week prior, according to the same source.

Middle East conflict stifles BTC recovery hopes.

Even though the new rate odds had a positive impact on the crypto market, rising tensions in the Middle East war toned down optimism and sent Bitcoin’s price back below $65K resistance. The US reinstated the blockade of the Strait of Hormuz and an American aircraft launched an attack on an Iranian-linked oil tanker. According to the US military, the ship attempted to violate the blockade and ignored several warnings.

It is unclear how this escalation will affect the crypto market, but one thing is becoming increasingly clearer: the war is not affecting Bitcoin as much as it did. At the beginning of the war, any news about potential or actual escalation would drive Bitcoin significantly lower. Now, the impact is much softer, which could be a sign of underlying BTC strength.

Chart Analysis – BTC/USD

Bitcoin is currently struggling to break above the 50-day Moving Average (blue line), and it’s unclear whether the resistance at $65K will generate a breakout or a bounce into lower territory. This is the key level for short-term action but also for middle-term movement because a bullish break could spark a stronger rally.

The three Moving Averages are still positioned in downtrend order (the 50-day MA is below the 100-day MA and both are below the 200-day MA). However, a break of the current resistance would open the door for a test of the long-term bearish trend line. A successful break could potentially shift the balance of power in favor of the bulls.