This week could turn out to be a stormy one for the crypto market, which will face macroeconomic headwinds coming from key economic indicators in both the US and Europe amid the US mid-term elections.
Both the United States and the Eurozone will release key macroeconomic figures this week, which in the past have also been linked to crypto market volatility.
November 1: US ISM PMI index
Those betting on a fall in crypto prices (short sellers) may find themselves facing the prospect of selling during the week. They may also observe a higher correlation between the stock market and cryptocurrencies.
The first benchmark is the ISM US manufacturing purchasing managers’ index, or ISM PMI, which was released on November 1, 2022. This index is derived from a monthly survey of purchasing managers, who can gain insight into early on their company’s performance.
A PMI index above 50 means the manufacturing sector is booming, which boosts investor confidence and causes a boom in the stock market. A PMI of 50 means stability, while a PMI below 50 means the manufacturing sector has stagnated.
November 2: Eurozone manufacturing PMI and Federal Funds Rate
A similar indicator in the eurozone, the manufacturing PMI, is due out on November 2, 2022 and similarly reveals the health of the manufacturing sector in the eurozone region.
ISM PMI index for October 2022 fell to 50.2, beating analysts’ expectations after reaching 50.9 last month. In the past, fiat currencies such as the US dollar have strengthened with a PMI index above 50. On the other hand, a PMI below 50 for two consecutive months indicates that the economy is in recession.
A PMI below 50.2, on the other hand, indicates that the economy has slowed slightly, possibly due to recent interest rate hikes by the US Federal Reserve (Fed). At the time of this article’s filing, the crypto market is stable overall, with five of the top ten cryptocurrencies by market capitalization in the green, compared to five in the red.
November 3: Eurozone unemployment rate in September
The US Department of Labor is also set to release the unemployment rate for October 2022. A drop in the latter usually means the labor market is strong and buoyed by economic prosperity. For its part, the eurozone will publish its employment rate for September 2022 on November 3, 2022.
November 4: US unemployment rate for October
Analysts expect the U.S. unemployment rate to rise to 3.6% from 3.5% in September 2022. If so, that could prompt the Federal Reserve to cautiously rein in interest rate hikes. This slowdown could prove bullish for the crypto market, meaning the economy would be less at risk of falling into recession.
So far, analysts have predicted that the Fed will raise the funds rate by 75 basis points (BPS) to 4% on November 2, 2022.
November 7: Index of employment trends in the United States
The index of employment trends is another important figure that highlights the possible evolution of the labor market in the coming months. An increased number means that jobs are likely to grow soon. Rather, a declining number means that jobs are likely to fall in the short term.
If the Fed continues to raise rates to cool the labor market, it could reduce hiring over the coming months. Knowing that the inflation rate is approaching the Fed’s target, the central bank may slow its pace of interest rate hikes. This could prove positive for Bitcoin as a risk asset, as investors are likely to return to the cryptocurrency as recessionary threats recede.
November 8: Retail sales in the Eurozone
Eurozone retail sales for September 2022, scheduled for release on November 8, could signal an entry into recession for this region of the world.
Retail sales are an indicator of consumer demand; in August 2022, they fell by 0.3% compared to July 2022. The region was hit really hard by the increase in energy prices, caused by the war in Ukraine. If demand continues to decline, cryptocurrencies are likely to be affected as well, as consumers will have less disposable income to spend on risky assets.
However, the picture could turn out to be more nuanced if European governments introduce measures to cut taxes or offer rebates for energy costs.
November 8: US midterm elections
With the approach of American elections medium term, the future of the crypto market in the United States is less clear. For these elections, 435 seats in the House of Representatives and 35 seats in the Senate are at stake. Although Republicans have generally been more supportive of cryptocurrency than their Democratic counterparts, a Republican victory will not necessarily translate into legislation favorable to digital currencies.
President Joe Biden’s “Crypto Framework” makes the issue even more complex as it risks leading to a legislative gridlock, with various bills making their way through Congress.
November 10: October CPI and US Real Earnings Dynamics
The US Consumer Price Index (CPI) for October 2022 is expected to be released on November 10, 2022, at 8:30 am ET (1:30 pm Paris time). In September, The CPI has been established with 8.2%, a decrease of 0.1% compared to August (8.3%).
The crypto market has not reacted as much to the September rate. However, it would be more likely to react to the October 2022 rate release if it turns out to be higher than last month.
Previously, a month-on-month increase in the CPI would cause crypto prices to fall, as inflation was too high. If the October rate increased from last month, this could lead to a sharp drop in the price of Bitcoin and the liquidation of positions in leverage. However, according to graph shown above, it appears as if the CPI rates have generated an increase.
How will the crypto market deal with these macroeconomic events?
With all the macro factors listed above, in the weekly data, Bitcoin is struggling with the resistance presented by the trendline of a descending triangle pattern as the market approaches the interest rate hike by the Fed.
The descending triangle is generally considered a structure graph bearish. Additionally, BTC is also testing the 20-week simple moving average (SMA) for the first time in seven months.
These important resistance areas could push the price back towards the support located at $18,000, where it previously held for almost five months. If this support is broken, the price will also move below the descending triangle pattern. This can lead to extreme volatility in the crypto market.
However, if the Fed’s interest rate hike reaches 50 BPS, Bitcoin could record a weekly close above the trendline. The bearish structure would then be reversed.
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