Without a doubt, there has been a shift in investor sentiment. There are several reasons for the downturn in the cryptocurrency market. Firstly, US stock indices closed the last trading day of October sharply lower, with the S&P 500 shedding 1.8% and the Nasdaq sliding 2.4%. The main drivers were mega-cap tech names, primarily Microsoft and Meta. Investors were alarmed by their quarterly reports, which showed a sharp increase in spending on AI development, which could negatively affect the future profits of these companies. Another reason for yesterday’s slump was US macro data.
The personal consumption expenditures price index (core PCE) came in at 2.7% for the third consecutive month, pointing to stability of inflationary pressure. In addition, labor market data turned out to be stronger than expected as weekly initial jobless claims fell to 216,000, while the Employment Cost Index rose 0.8% in Q3.
These factors, coupled with increased volatility in the Treasury bond market, have forced investors to take a more cautious stance ahead of the FOMC meeting on November 7. According to CME Group, the chance of a 25-bp rate cut currently stands at 95%.
Secondly, according to Israeli intelligence, Iran is preparing to launch a large-scale attack on Israel from Iraq, possibly using UAVs and ballistic missiles. The attack could be timed to coincide with the US presidential election on November 5. This was perhaps the key factor in the decline of the cryptocurrency market ahead of the weekend.
At the time of writing, bitcoin is trading at $69,500. Downward retracement from the high of $73,620 was 5.6%. The support level we are closely watching now is $68,850. In order for the rally to gain traction, it would be better if this mark were not breached. Israel has clearly reported some negative news, but market participants should be prepared for a deeper pullback. Overall, the technical picture remains favorable for the BTCUSDT pair to reach $87k. A breakout of $64k would send the first signal of a reversal and the beginning of the formation of a double top pattern. Such a pattern would not fit with historical formations seen in the wake of the halving event. That being said, there is no need to panic yet.