Is Tezos price action set to flip 180 degrees north?

Tezos (XTZ) price is bouncing on the euphoria of Wednesday when US CPI dropped below estimates and came out lower-than-expected, which for once means good news. It suggests that households will see their living costs stabilising a bit after a steep decline lasting six months. Although this number is very supportive and has seen XTZ price rally 8% thus far, one Dovish Fed member said that the Bank is not done with raising rates at all and still needs to keep hiking them at an excruciating pace, which could spell trouble ahead for cryptocurrency traders if they do not watch out.

XTZ price rally to be handled with care

Tezos price is set to test and break above the monthly R1 resistance level at $1.96 despite already receiving a small rejection this morning. The level is becoming quite a hurdle for bulls, who were not able to break above it on August 8. The risk is that the R1 resistance could turn into a double top, capping price for the foreseeable future. Additionally, traders in any segment of the markets need to keep in mind the warnings that several Fed members issued afterward regarding what the Fed will do next. 

XTZ price rallied on the back of downgraded rate hike expectations, with the next  meeting in September only expected to yield a  50 bp rather than 75 bp rise. This opened the door for investors to jump on risk-on assets. Hours after the CPI print, however, a handful of Fed officials all came out in sync saying that the Fed is not done, with even a very dovish member repeating the same message. That counts as a big signal on the horizon that the rally in XTZ price might only reach $2.25 and then fall back once the Fed confirms it will still  hike by 75bp – higher than current expectations.

XTZ/USD Daily chart

With this limited upside scenario in mind, a simple technical rejection has already been mentioned in the case of a double top forming against the monthly R1. In a bearish scenario, a fade could unfold, and – should price action break below the low of Wednesday – traders should expect to see a drop back to the monthly pivot in search of support. This might be found  at around $1.64, or from the 55-day Simple Moving Average at $1.60.