US stocks have been making a strong recovery after last week’s sharp decline, triggered by the Japanese carry trade unwind. While the market isn’t out of the woods yet, a positive Consumer Price Index (CPI) report expected later today could continue to fuel the rally. If that happens, Bitcoin (BTC) may well follow suit.
Recovery Follows the Bloodbath
Just over a week ago, the US stock market opened to a bloodbath on Monday, following the sudden unwinding of the Japanese yen carry trade. This event sparked fears that the long-anticipated recession might finally be taking hold.
The S&P 500 dropped around 8%, while the tech-heavy Nasdaq plunged more than 10%. Leading stocks, known as “The Magnificent 7,” suffered significant losses, with Nvidia (NVDA) falling 24% and other large-cap stocks losing at least 10%.
However, by the end of that Monday, recovery signs emerged, and the market has generally been on an upward trajectory since. If today’s CPI data is favorable, stocks could return to their pre-Japan crash levels by the end of the week.
Nasdaq About to Break the Downtrend?
Looking at the Nasdaq 100 Index, there’s a chance it could break the current downtrend today, depending on the CPI data. If the index can push through the resistance at $19,535, it would form a crucial higher high. This move could set the stage for the Nasdaq to head back to its all-time highs, potentially bringing the crypto market along with it.
Bitcoin’s Late Summer Breakout?
Bitcoin’s daily chart shows a similar v-shaped recovery, much like Nvidia. Currently, BTC is up 24% from its recent low. However, it still faces significant resistance at $61,000, followed by the 0.618 Fibonacci level at $62,000. The next targets would be $63,000 and $65,000 at the 0.786 Fibonacci level.
If the annual core inflation rate drops to 3.2%, the chances of the Federal Reserve cutting interest rates by 50 basis points in September will improve. While the economic outlook remains uncertain, and a black swan event is still possible, increasing global liquidity is creating a more favorable environment for Bitcoin. A late summer breakout could be on the horizon.
