Key Week for Bitcoin and the Dollar Index

• Tuesday’s US manufacturing data is likely to show continued contraction, signaling weakness in the dollar index and strength in bitcoin.

• Traders should be on the lookout for an August-like bullish scare in risk assets.

• Friday’s US jobs data could extend dollar weakness, according to ING.

Bitcoin {{BTC}}, the leading cryptocurrency by market value, fell more than 10% in the seven days to September 1, reversing the previous week’s price gains as the decline in the dollar index stalled.

The flurry of US economic data ahead this week will likely determine whether the dollar resumes its two-month losing streak, providing a tailwind for risk assets, including cryptocurrencies.

Economic releases begin on Tuesday with the Institute for Supply Management’s (ISM) manufacturing purchasing managers’ index (PMI) for August. According to ForexLive, the consensus is that the index will rise to 47.5 from 46.8 in July, which signaled the sharpest contraction in factory activity since November 2023.

A weak reading will strengthen the case for the Federal Reserve to cut interest rates, driving the dollar lower and spurring demand for riskier assets. Interest rate markets are already pricing in a 70 percent chance of a 25 basis point cut and a 30 percent chance of a 50 basis point cut in September, according to CME’s FedWatch tool.

“Rate cuts are good for BTC because it is particularly sensitive to monetary liquidity conditions (seen as a risk asset with no cash flow or margins to be affected in a slowdown),” Noelle Acheson, author of the popular Crypto Is Macro Now newsletter, said in last week’s edition.

“A weaker US dollar is good for BTC as it tends to boost monetary liquidity by lowering the cost of capital. In addition, expectations of continued dollar weakness highlight the usefulness of a dollar hedge and should increase spending power (and hedging interest) in other And, the dollar is the denominator of the most quoted pair (BTC/USD),” he wrote Acheson.

That said, July’s weaker-than-expected ISM PMI released on August 1 stoked recession fears, weighing on risk assets even as the dollar weakened. BTC fell 3.7% to $62,300 on the day. Traders should therefore be on the lookout for a “growth scare” should the PMI come in worse than expected.

“This is a key measure as risk assets have fallen sharply of late,” Markus Thielen, founder of 10x Research, said in a weekly preview note.

Non-farm payrolls fall on Friday

ForexLive analyst Giuseppe Dellamotta’s weekly preview note echoed the sentiment. “The main culprit would have been the employment sub-index falling to a new 4-year low ahead of the NFP report, which ultimately triggered another wave of selling (in risk assets) as it came out weaker than generally expected,” Dellamotta said, referring to the release of US non-farm payrolls.

The story continues

Later this week, the focus will shift to JOLTS jobs data due on Wednesday, ISM services PMI, ADP and weekly jobless claims on Thursday and the main event of the week – the non-farm payrolls (NFP) report ) from August Friday.

“If the consensus is correct on Friday’s jobs report (165,000 job growth and a drop in the unemployment rate back to 4.2%), then market prices will strengthen with only a 25 bp at the start of the Fed easing cycle on September 18,” analysts at ING said in a Monday morning note.

However, according to ING’s US economists, payrolls could show additions of just 125,000 and the unemployment rate rising to 4.4%, resulting in a continued decline in the US dollar.

From a technical analysis perspective, BTC is on the defensive ahead of key data releases, with indicators such as the MACD histogram indicating a consolidation of downward momentum.

“Technical indicators suggest bearish momentum may persist,” Valentin Fournier, an analyst at research firm BRN, said in an email. “The MACD is showing increasingly negative momentum, while the RSI is at a neutral level. The lower band of the Bollinger Bands remains around $56,000, indicating potential further declines towards this level.”