Bitcoin Breaks Out to New Local Highs on the Back of Chinese Yuan Devaluation
Bitcoin has extricated itself from the seemingly never-ending trading range between $620 – 640, although the bulls did not quite have enough juice left to push sustainably above $650.
Finally, Bitcoin has extricated itself from the seemingly never-ending trading range between $620 – 640, although the bulls did not quite have enough juice left to push sustainably above $650. Despite needing a small recharge, the market looks primed for more upside in the coming weeks.
Over the past few months the Bitcoin price has been tracking unusually closely to the USDCNH exchange rate, which has been relatively flat until recently. Last week saw a substantial increase in chatter regarding additional Yuan devaluations going into year end, and last Friday saw the exchange rate hit a multi-year high (meaning a historically weak Yuan). This pushed Bitcoin convincingly above resistance at $630, $640, and $640, although the bulls were unable to hold the $650 level for very long due to short-term overbought conditions. Now price is settling back into a consolidation range for the time being, likely in the $640 – 655 area, in order to reset the indicators, washout weak hands, and find legitimate support. Having said that, the longer term charts continue to look fairly bullish so we are maintaining our upward bias for now.
Speaking of the longer-term outlook, today we take a look at the 3-day chart for a broader view of what is currently happening in the market. We can see that price is butting up against the OTE short zone which starts around $660 following a nice market structure bottom at the 38.2% Fibonacci retracement level. Also notice that the momentum oscillators are in need of a pullback given Willy is officially oversold, RSI is close, and MACD remains rather anemic. Lastly on the bearish side of things, price remains well outside of the volume profile value area and above a large notch, however this area may remain unfilled, considering we think a selloff back down to the $500 region is unlikely at this time.
Moving on to the more bullish indications, market structure is encouraging, as is the recent price action, and the A/D line is signaling that buyers continue to outweigh sellers even at these relatively elevated levels. Additionally, the 200-period SMA and the near term trendline are both confirming the uptrend, although price does remain somewhat extended above there. All things considered, we think the market is due for a small pullback/consolidation in order to realign the technicals and reset expectations, however for the most part it looks to us like the market is getting ready to resolve out of the broader $450 – 700 trading range in the not too distant future.
We admit, it could take another month or so before we are challenging the ~$780 regional highs in earnest, but we continue to think a move to new yearly highs materializes prior to the end of 2016. Fundamentally things continue to improve both internally and externally (think SegWit and Yuan deval, respectively), so a move up into the next large resistance area between $850 – 1000 over the course of the next few months is justified in our opinion. Having said that, until we actually get that breakout move, we can continue to buy the dips and sell the rips within the shorter-term ranges that we have been identifying each week.
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