In our November 8 report, we had cautioned readers that BTCUSD is trading in the overbought region and a steep fall can be expected at any time. We had also mentioned our interest to go short at 7100 levels with a target level of about 6120. The cryptocurrency fell against the Greenback as expected and hit our target. In fact, the BTCUSD pair hit a low of 5498. We anticipate a recovery in the BTCUSD pair in the week ahead, due to the reasons listed below.
In order to forecast the short-term trend of the BTCUSD pair, it would be better to study the reason for the sharp fall in the price of Bitcoin last week. Bitcoin network was scheduled to undergo a hardware fork on or around November 16. The plan, technically known as Segwit2x, was formulated to address the delays related to blockchain transaction confirmations. The Segwit2x would have increased the block size at block 494,784, thereby leading to an increase in the block’s transaction capacity.
However, due to a lack of consensus, Mike Belshe, CEO of Bitcoin wallet software provider BitGo and one of the leaders of the hardware fork project, suspended the transaction (after a meeting with other stakeholders in the project). Belshe clarified that the plan will be implemented in the future, once the controversial project is agreed upon by more stakeholders. As it can be understood, Bitcoin’s value fell not because of any straightforward negative news, but due to the suspension of a software fork. Thus, the BTCUSD pair is expected to bounce back soon.
Further, Bitcoin Cash, which was created through a hardware fork in July, rose nearly sevenfold to $2,767 on Saturday last week. Since, Bitcoin Cash and Bitcoin have an inverse correlation, the value of Bitcoin declined. It should be noted that Bitcoin Cash is hardly used in day-to-day transactions. Thus, we anticipate a sharp fall in the price of Bitcoin Cash. In fact, at the time of writing this article, Bitcoin Cash has already fallen to about $1300. As BCHUSD declines further, BTCUSD could recover strongly.
In the US, the Trump administration is facing opposition to the tax reform plan. Further, the announcement of Jerome Powell as the next Chair of the Federal Reserve Board has caused disappointment among speculators and investors. Powell is expected to toe the line of Janet Yellen and normalize interest rates gradually. Thus, we forecast a rally in the BTCUSD pair in the week ahead.
The BTCUSD pair has bounced off the support at 5830. Both RSI and Williams’ Percentage Range indicator is ascending after dipping below the bearish zone. Thus, we anticipate a dead cat bounce in the BTCUSD pair.
We wish to position ourselves to gain from the impending rally by opening a long position near 6500 in the BTCUSD pair. Considering the volatility, we would certainly place a stop-loss order below 6200. If the BTCUSD pair rallies as anticipated, then we would book a profit near 7100.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
