According to Bollinger Band theory, BTCUSD looks to be setting up for a move. Currently, the bands are squeezing (red arrows). Moreover, the Bollinger Width indicator has dropped below 0.1 (red horizontal). This reading suggests a tight compression, which may be the proverbial calm before the storm.
Bollinger Bands suggest a volatility cycle that oscillates between band squeezes and expansions. For example, the previous four times, the Bollinger Width dropped below 0.1 (green dashed verticals), significant volatility increases followed, with the cryptocurrency declining meaningfully.
The theory has little to say about the direction of the break. However, since Bitcoin has generally maintained an inverse relationship to FXCM's USDOLLAR basket, we infer a base case scenario.
The greenback is rampant. Sticky inflation and a tight labour market suggest 75bps in November, which is dollar supportive. If the core CPI print on Thursday surprises, this will catalyse a Bollinger expansion and a BTCUSD swing.
The sticky element of inflation is still resilient, which may keep inflation elevated (our base case). If so, this will act as a drag on Bitcoin.
However, a downside surprise will discount very quickly and support the cryptocurrency.
Senior Market Specialist
Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.