Can Inflation Data Trigger the Next BTC Breakout?

Bitcoin is easing back on Tuesday towards $78K, extending a pullback from last week's three-month high as headwinds start to stack up. Can this week’s US inflation data spur the next move higher?

1. Rising Treasury yields and Fed rate hike expectations 

Bitcoin briefly climbed towards $81.5K last week before retreating after Friday's stronger-than-expected nonfarm payroll report. Job creation of 162,000 in August was almost triple economists' expectations, prompting the market to lift September Fed rate hike expectations to around 60%.

High interest rate expectations and rising Treasury yields typically dampen demand for Bitcoin and other risk-sensitive assets by tightening financial conditions.

2. Rising oil prices and inflation pressures

Adding to inflationary concerns, oil prices are proving to be another headwind, with Brent rising above $98 a barrel, its highest level in six weeks, amid escalating U.S.-Iran tensions. The conflict has raised concerns over supply disruptions and increased the geopolitical risk premium on oil.

Attention is now firmly on Thursday's PPI inflation and Friday's CPI inflation data, the last major inflation readings ahead of next week's FOMC meeting.

For Bitcoin to push north of $80K, the market will want cooler inflation data, which could reduce the likelihood of a September hike, along with lower oil prices.

3. Stronger yen and unwinding of the carry trade

However, other macro risks remain, as the Japanese yen rises to a seven-month high against the U.S. dollar, sparking speculation about a possible unwinding of the carry trade. This could also put pressure on risk assets as investors unwind leveraged positions.

4. STH Whales and Coinbase BTC premium index raise concerns

Elsewhere, on-chain data shows that the short-term holder whale cohort is sitting on a record $9 billion in unrealized profit. This raises the risk of near-term selling. According to CryptoQuant data, short-term holders have typically been quick to lock in profits when prices weaken, and even a small pullback could prompt profit-taking.

The Coinbase Bitcoin premium index has also remained largely negative in the first week of September, suggesting U.S. spot buying has not kept pace with Bitcoin's price recovery. While the indicator briefly improved as Bitcoin surged, that recovery has not been sustained and has been falling since. This raises concerns that a move towards $85,000 above $80K may need stronger buying support.

Case for the BTC bulls

However, it's not all bad news. Despite rising Fed rate hike expectations, the U.S. dollar remains relatively depressed at around a two-week low. Furthermore, Bitcoin is increasingly being treated as digital gold. Its correlation with gold has recently risen to a six-year high, strengthening the argument that it is being seen as an alternative store of value against currency debasement and fiscal concerns. Bitcoin ETFs are also proving to be a source of optimism. BTC ETFs have rebounded in recent weeks, providing support to the market. So far, the conditions for a sustained breakout above $80K have failed to materialise. The implication is that inflation data could determine whether current ranges hold or whether a breakout, either to the upside or downside, takes place. 

Bitcoin technical analysis 

After breaking above the 50 EMA, BTC hit resistance at 81.5K last week and has since eased back to consolidate around 78K. The broader uptrend remains intact, with price holding well above the 50, 100, and 200-day EMAs, but momentum is fading. The RSI has come out of overbought territory and continues to point lower, while the MACD has formed a bearish crossover.

Immediate support is seen at 77K, the 78.6% Fib retracement of the 57.7K–82.5K move. A break below here would expose the 200 EMA at 72.7K, closely followed by the 50 EMA at 72.3K. A break below this zone could signal a deeper correction towards 70K, the psychological level and 50% Fibonacci retracement, as well as the 100 EMA.  

On the upside, buyers will need to break above the 81.5K–82.5K resistance zone to restore upside momentum. A move above this area would turn attention towards 90K, the psychological level, ahead of 100K. 

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