Bitcoin and Dollar Index Face Crucial Week Ahead

Tuesday’s U.S. manufacturing data is expected to reveal ongoing contraction, which could indicate a weakening dollar index and a strengthening position for bitcoin. Traders are advised to be vigilant for a potential growth scare reminiscent of August in risk assets. ING suggests that Friday’s U.S. jobs data might prolong the dollar’s decline.

Bitcoin (BTC), the primary cryptocurrency by market capitalization, experienced a more than 10% drop in the seven days leading up to September 1, reversing the previous week’s price rebound as the dollar index’s descent paused.

The array of U.S. economic data scheduled for this week is likely to determine whether the dollar will resume its two-month weakening trend, providing support for risk assets, including cryptocurrencies.

The week kicks off with the Institute of Supply Management’s (ISM) manufacturing purchasing managers’ index (PMI) for August. Analysts anticipate an increase to 47.5 from July’s 46.8, which marked the most substantial factory activity contraction since November 2023.

A weak PMI reading could bolster the case for the Federal Reserve to reduce interest rates, resulting in a lower dollar and increased demand for riskier assets. Markets are currently pricing in a 70% probability of a 25 basis point cut and a 30% likelihood of a 50 basis point cut in September, according to CME’s FedWatch tool.

Noelle Acheson, the author of Crypto Is Macro Now, emphasized in a recent newsletter the positive impact of rate cuts on BTC due to its sensitivity to monetary liquidity conditions and the benefits of a weaker U.S. dollar on the cryptocurrency.

July’s lower-than-expected ISM PMI release triggered recession concerns, leading to a drop in risk assets even as the dollar weakened. Traders are cautioned to be wary of a potential growth scare if the PMI falls below expectations.

Later in the week, attention will turn to JOLTS job opening data, ISM services PMI, ADP, and weekly jobless claims on Thursday, culminating in the highlight of the week – the August nonfarm payrolls (NFP) report on Friday.

Technical analysis indicates that BTC is vulnerable ahead of key data releases, with indicators like the MACD histogram suggesting a strengthening downside momentum. Analysts foresee a potential further decline towards $56,000 based on technical indicators like the MACD and RSI.

Overall, the upcoming economic data releases will likely have a significant impact on the dollar’s trajectory and the performance of risk assets, including cryptocurrencies like bitcoin.