As the conflict with Iran escalates, the market is no longer falling. Follow the subsequent speech by Old Powell to determine the outcome.

In the long run, what matters most for Bitcoin is not geopolitics, but the US dollar index.

Written by: Tuanzi Finance

The conflict between Israel and Iran has rekindled, causing the cryptocurrency market to retreat from its highs as the weekend approaches, erasing the gains made over the past week due to positive U.S. economic data. Although there was no conclusion to the China-U.S. trade negotiations at the beginning of last week, a preliminary agreement was reached, with both sides agreeing to open trade in principle, pending details to be finalized. As a result, the market atmosphere was generally optimistic when trading opened at the beginning of the week, with Bitcoin rising back above 110,000 USD, awaiting Wednesday’s CPI results to see if it can challenge new highs again.

Last Wednesday, the CPI released figures lower than expected, while Thursday’s PPI and unemployment data also indicated that inflation in the U.S. has not worsened as anticipated, and the job market has begun to slow down. This data is entirely favorable for interest rate cuts, leading the market to anticipate that a rate cut could happen as early as September, stimulating the market to maintain high-level fluctuations.

Unfortunately, good times do not last long. Early Wednesday, news emerged that the situation in the Middle East was becoming tense, and by Friday, direct conflict broke out, plunging the market back into a slump. However, interestingly, observing the daily trend of Bitcoin, the drop caused by the war between the two countries is not as severe as the fallout from the previous week’s conflict between Trump and Biden. At least Bitcoin did not challenge the important threshold of 100,000 USD again.

Focus on Powell’s Speech at the Thursday Interest Rate Meeting

This week, the market is expected to still be affected by the situation in the Middle East. Whether other countries, especially the United States, will actively intervene will cause some fluctuations in the market. Of course, the biggest black swan would be if Iran actually builds and uses nuclear weapons, but the probability of that is quite low.

On the contrary, if both sides “stop short” like in previous conflicts, and then Trump facilitates bilateral talks, the market gloom will dissipate. In the past, after conflicts between the two sides, there has always been a significant surge, and Bitcoin has a great chance to return to 110,000 dollars.

Aside from the Middle East issue, the US will release retail sales data on Tuesday, followed by unemployment figures on Wednesday, and then the Federal Reserve’s interest rate decision will be announced early Thursday morning. The market currently expects interest rates to remain unchanged, so everyone is waiting for Powell’s speech at the press conference.

According to the economic data released last week, inflation has not worsened as much as expected due to tariffs. We will see if Powell softens his stance on maintaining interest rates or hints at when rate cuts might start. If his comments lean dovish, the market will tend to be optimistic, but currently, the market speculates that he will maintain a temporary stance on keeping interest rates unchanged.

The current fear index is 60, still in a state of greed.

The market is quiet, and liquidity is low during the weekend. Coupled with the negative news looming overhead, most funds are in a wait-and-see state. The positive aspect is that the conflict in the Middle East is escalating, but the market has stopped declining, and Bitcoin has recorded ETF inflows for five consecutive days. In the long run, the most important factor for Bitcoin is not geopolitical tensions, but the US Dollar Index (DXY). The Dollar Index has just fallen below 100, reaching its lowest level in over three years. Clearly, the dollar is declining, while Bitcoin usually moves in the opposite direction. Since the negative news isn’t driving prices down, there will be a rebound when the negative sentiment eases. So, it’s wise to hold on and be patient.