Bitcoin ‘nuke’ warning as Fed rate hike decision looms – Dollar index hits 20-year high

Bitcoin (BTC) experienced a weak recovery on September 21st, and the US dollar jumped to a new annual high as investors await the September 21st Federal Open Market Committee’s interest rate decision.

BTC price holds $19K ahead of Fed decision

BTC’s price has managed to hold on to $19,000 with a modest daily gain of 1.33%. Meanwhile, the U.S. dollar index ( DXY ), which measures the greenback’s strength against a pool of top foreign currencies, rose to 110.86, its highest level in 20 years.

FOMC rate hike scenarios

The Federal Reserve is poised to discuss how far it can raise benchmark lending rates to curb record inflation. Interestingly, the market expects the US Federal Reserve to raise interest rates by 75 or 100 basis points (bps).

The ramifications of higher interest rates are likely to result in a lower appetite for riskier assets such as stocks and cryptocurrencies. Conversely, the US dollar will serve as a safe haven for investors escaping asset risk.

“There appears to be no reason for the Fed to soften the hawkishness displayed at the recent Jackson Hole symposium, and a [0.75 percentage point] “Hookesian upswing” should keep the dollar close to this year’s highs, say analysts at ING to the Financial Times.

Independent market analyst PostyXBT claims that a rate of 100 bps could “nuke” Bitcoin below today’s technical support at $18,800. He also suggests that BTC has a good chance to recover if the rate hike turns out to be lower than expected, or 50 bps.

$BTC 1D

As us FOMC experts know, today is a big day!

100bps likely nuclear support for good?
50bps likely to pump and give bulls some breathing room?

Going to be a very interesting daily finish pic.twitter.com/mJP7qpGEv1

— Posty (@PostyXBT) 21 September 2022

These speculations reflect expectations of general interest rate increases. John Kicklighter, chief strategist at DailyFX, notes that a 50 bps rate hike would be bullish for the US stock market benchmark.

Nonetheless, a 100 bps rate hike would be extremely bearish for the S&P 500. This could be equally problematic for Bitcoin, whose correlation with stocks has been consistently positive since December 2021.

Opinion polls expect an interest rate increase of 75 bps

The US economy suffered two back-to-back quarters of negative growth. Also, its manufacturing PMI pointed to the slowest growth in factory activity since July 2020. Meanwhile, the two-year USTreasury yield has crossed above the 10-year US Treasury yield, plotting a yield curve.

Related: What’s Next for Bitcoin and the Crypto Market Now that the Ethereum Merger Is Over?

These calculations raise the alarm about an impending recession. But offsetting those are unemployment data at record lows and home-starter rates that remain above the $1.35 million threshold, according to data presented by Charles Edwards, founder of Capriole Investments.

Normally, recession warnings cause the Fed to vacillate. In other words, to reduce or pause the tour rates. But Edwards notes that the central bank will not swing since the US economy is not technically in recession.

“Until major recession worries surface, until it hurts where it counts — employment — there is no reason to expect an urgent change in Fed policy here,” he wrote, adding:

“So it’s business as usual until we have evidence that inflation is under control.”

Most economists, or 44 of the 72 surveyed by Reuters, also predict that the Fed will raise interest rates by 75 bps at its September meeting. Therefore, Bitcoin may avoid a deeper correction if it maintains its correlation with the S&P 500, based on Kicklighter’s outlook.

Bitcoin to $14K Next?

From a technical perspective, Bitcoin could fall to $14,000 in 2022 if a drop below the current support level of around $18,800 triggers a “head-and-shoulders” breakdown.

Conversely, a pullback from the $18,800 support could have BTC’s price target at $22,500 as its temporary upside target, or a 16.5% increase from the September 21st price

The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trade involves risk, you should do your own research when making a decision.