Bitcoin reverses losses, recovering above 96k – US inflation data is the next test

Bitcoin reversed losses after briefly spiking below the 90k critical level for the first time in months. The price quickly recovered, trading above 96k, as the market mood improved and ahead of US inflation data. 

Bitcoin dropped by as much as 5.3% on Monday to 89.3k, its lowest level since November 18 and well below its record high of 108.3k reached in December. However, dip buyers have been out in force to help the world’s largest cryptocurrency quickly rebound 7k as risk sentiment improves across the broader financial market. 

Risk sentiment improves on gradual trade tariff hopes 

News that Trump’s team is considering a more gradual approach to implementing US trade tariffs has helped soothe market fears, reigniting risk appetite.  A slower approach to trade tariffs not only gives the Trump administration more leverage in negotiations but could also help avoid the spike in inflation that the markets have been fretting over. As a result, US treasury yields, which had risen to a 14-month high of 4.79%, are easing, and demand for riskier assets such as crypto and equities is improving. Bitcoin has traded 6% higher over the past 24 hours, and S&P 500 futures are heading for a positive open. 

US inflation data will test the market’s resolve 

Attention will now turn to US inflation data for further clues about the trajectory of inflation and Fed rate cuts. Today, US PPI data is expected to rise to 3.7% YoY in December, up from 3.4% in the previous month. Tomorrow, CPI is expected to show inflation ticking higher to 2.9% YoY, heading further from the Fed’s 2% target. 

The inflation data comes after recent data highlighted the strength of the US economy, prompting the Federal Reserve to adopt a more cautious stance to rate cuts. As a result, the market is only pricing in one rate cut this year, which has been pushed out until December. 

Hot inflation data could further dampen Fed rate cut expectations, particularly given that Trump's expected policies (tax cuts, trade tariffs) will likely be inflationary. This could result in the Bitcoin price coming under pressure again. 

Bitcoin and other risk assets perform better in lower interest rate environments with greater liquidity. 

Looking ahead 

Beyond inflation data, Trump’s inauguration on January 20 and the Fed meeting at the end of the month mean fundamentals will remain in focus. This could help drive direction after recent investor hesitation, which has kept Bitcoin in the 103k—90k range.  

Where next for Bitcoin? 

BTC/USD briefly spiked below the 90k critical barrier before recovering and returning to trade in a holding pattern between 103k and 90k. The price is hovering around the 23.6% Fib retracement level of around 94.5k. 

BTC/USD has tested 90k on three occasions, and yesterday was the first spike below this level. A sustained break below 90k and 89k, the rising trendline could open the door to 85k, the 38.3% Fib retracement. A break below here could spark a deeper selloff towards 80k. 

Buyers must rise above the 103k resistance zone to extend gains to 108k and fresh all-time highs. 

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