The U.S. manufacturing data released on Tuesday may continue to show a shrinking trend, which will indicate a weaker U.S. dollar index and a stronger Bitcoin.
Traders should be wary of a similar growth scare that occurred in risk assets in August.
ABN Amro said U.S. jobs data due on Friday could extend the dollars weakness.
Bitcoin (BTC), the leading cryptocurrency by market value, fell more than 10% in the seven days to September 1, reversing the previous week’s price rebound as the dollar index stalled.
A slew of U.S. economic data due out this week could determine whether the dollar resumes its two-month weakening trend, providing a tailwind for risk assets including cryptocurrencies.
Economic data will be released on Tuesday, starting with the Institute for Supply Management (ISM) Manufacturing Purchasing Managers Index (PMI) for August. The consensus is expected to rise to 47.5 from 46.8 in July, indicating the largest contraction in manufacturing activity since November 2023, ForexLive reported.
The weak data would strengthen the Feds case for rate cuts, weakening the dollar and boosting demand for riskier assets. Rate markets are already pricing in a 70% chance of a 25 basis point cut in September and a 30% chance of a 50 basis point cut, according to the CMEs FedWatch tool.
“Rate cuts are good for BTC as it is particularly sensitive to monetary liquidity conditions (it is seen as a risky asset with no cash flows or profit margins that would be hurt by an economic slowdown),” Noelle Acheson, author of the popular Crypto Is Macro Now newsletter, said in last week’s edition.
“A weaker USD is bullish for Bitcoin as it tends to increase monetary liquidity by reducing the cost of capital. Additionally, the expectation of a continued weakening USD highlights the utility of USD hedging and should increase spending power (and hedging interest) in other jurisdictions. Moreover, the USD is the denominator of the most quoted currency pair (BTC/USD),” Acheson wrote.
Nonetheless, the release of lower-than-expected ISM PMI data for July on August 1 stoked recession fears, weighing on risk assets despite a fall in the dollar. On the same day, Bitcoin fell 3.7% to $62,300. Therefore, traders should be wary of a “growth scare” if PMI data comes in lower than expected.
“This is a key indicator because risk assets fell sharply the last time,” 10x Research founder Markus Thielen said in a weekly preview report.
Non-farm payrolls data to be released on Friday
ForexLive analyst Giuseppe Dellamotta echoed that sentiment in his weekly preview. “The main reason could be that the employment component fell to a four-year low ahead of the non-farm payrolls report, which ultimately triggered another wave of [risk asset] selling as the non-farm payrolls report was weaker than expected across the board,” Dellamotta said, referring to the U.S. non-farm payrolls data.
Later in the week, the focus will turn to the JOLTS job openings data on Wednesday, the ISM services PMI, ADP and weekly jobless claims on Thursday, and the highlight of the week - the August non-farm payrolls (NFP) report on Friday.
If consensus expectations for Fridays jobs report are correct (165,000 jobs added and unemployment falling back to 4.2%), then the market will price in just a 25bp cut as the Fed begins its easing cycle on September 18, ING analysts said in a note Monday morning.
But ABN Amros U.S. economists expect nonfarm payrolls to increase by only 125,000 and the unemployment rate to rise to 4.4%, causing the dollar to continue to fall.
From a technical analysis perspective, BTC is on the defensive ahead of the release of key data, with indicators such as the MACD histogram pointing to strengthening downside momentum.
Technical indicators suggest that the bearish momentum may continue. The MACD shows increasingly negative momentum, while the RSI is at neutral levels. The lower Bollinger Band is still around $56,000, suggesting that further declines to that level are possible, Valentin Fournier, an analyst at research firm BRN, said in an email.
