Bitcoin Price Forecast: BTC/USD Faces 2021 Low as Risk Assets Plummet

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BITCOIN, BTC/USD, INFLATION, REAL YIELDS, CHINA CREDIT - TALKING POINTS

• Bitcoin sinks alongside risk assets after US CPI beats forecast
• China’s credit growth in focus as new yuan loans data nears
• BTC/USD threatening 2021 low as crypto fear exponentiates

THURSDAY’S ASIA-PACIFIC OUTLOOK

A risk-off move from overnight is likely to extend into today’s Asia-Pacific session. US stocks closed in the red after traders digested the latest inflation data out of the United States. The US consumer price index (CPI) crossed the wires at 8.3% versus the 8.1% Bloomberg consensus forecast. While that was lower than the prior month’s 8.5% print, it reignited inflation woes. Bitcoin fell over 9%, nearly breaching its 2021 low at 27,734.00. That brought the cryptocurrency’s monthly loss to over 23%, a stunning move considering April’s 17.31% drop.

Short-term US breakeven rates rose following the CPI data, with the 2-year breakeven rising nearly 20-basis points, although it remains below 4%. That helped push real yields lower, helping to boost gold and silver prices. The tailwind from the move in real yields came just in time for XAU, given that the metal was trading at critical support. Other safe-haven assets also benefited as equity prices fell. The Japanese Yen managed to gain versus a US Dollar that rose against the Euro and the British Pound. That pushed the DXY index slightly higher.

The stronger Dollar helped to push iron ore prices lower, dragging on the commodity-sensitive Australian Dollar. China’s battle with Covid under its “Zero-Covid” policy has pressured industrial metals as factories across the Asian economy run at reduced capacity. A report from the China Passenger Car Association, released Tuesday, stated that production among five auto companies in Shanghai dropped by 75% in April from the month prior. Although not as severe, other auto manufacturers elsewhere in China saw significant production drops.

Traders are on watch for a credit update out of China. New Yuan loans data for April may cross the wires as soon as today. Analysts see new loans crossing the wires at 1.53 trillion, according to a Bloomberg survey. That would be nearly half the amount of new loans created in March, representing a sharp contraction in the country’s credit creation. A softer-than-expected figure may weaken sentiment further, especially given that loans would be falling severely at a time when the PBOC and Beijing are bolstering support for the economy.

BTC/USD TECHNICAL FORECAST

Bitcoin prices dropped overnight, nearly touching the 2021 low before trimming some losses. The bearish pressure may grow further now that prices are below the psychological 30,000 level. The Relative Strength Index (RSI) is in oversold territory and moving lower, reflecting the recent bout of extreme weakness. The 2021 low at 27,734 will likely remain pivotal, with a drop below the level perhaps bringing additional weakness.

BTC/USD DAILY CHART

Chart created with TradingView

--- Written by Thomas Westwater, Analyst for DailyFX.com. 12th May 2022