BTCUSD is starting to consolidate even more tightly ahead of the US elections, which means that its setting up for a large breakout. Now the results are set to come in one state at a time after the voting centers close so market sentiment could be fickle around that time.
Based on recent price action, the US dollar gains support on a potential victory by Democratic nominee Hillary Clinton. After all, this would mean that the incumbent political party would stay in the White House, ensuring better continuity and less uncertainty. On the other hand, a Trump victory could cause a ruckus in US markets since his brash rhetoric and political views could bring more uncertainty to the US and global economy.
BTCUSD could spike up and down as the results trickle in, with near-term resistance at the $740 area and support at $670. Stops beyond these levels are recommended if you’re playing the event or keeping positions open.
The 100 SMA just recently crossed below the longer-term 200 SMA to show that the path of least resistance is to the downside, a bullish scenario for the US currency. Stronger selling pressure could take it down to the next area of interest at $640-650.
RSI is on middle ground, barely offering any strong directional clues at the moment. Still, it’s worth noting that the oscillator is on its way down so there’s some selling pressure left. Stochastic is also heading south to show that sellers are in control of price action. In fact, BTCUSD appears to be forming a complex head and shoulders pattern if the near-term resistance at $710 holds.
The neckline is located somewhere around $680-690 and a break below this level could spur a drop of around $50-60, which is roughly the same height as the head and shoulders reversal formation. There is some degree of bearish pressure on the cryptocurrency after the Chinese government recently threatened to impose restrictions on bitcoin trading in the local market.
Although analysts think that these rules will be harder to implement than in theory, the government could go for a more extreme measure in banning bitcoin trading altogether, which would significantly dry up liquidity in the market. Earlier today, China reported a much weaker trade balance due to another sharp slide in exports. Yuan devaluation could help the country retain its advantage in international trade and the government thinks that bitcoin trading is making it more difficult to keep the Chinese currency weak.
In a nutshell, the path of least resistance for bitcoin is to the downside if Chinese investors continue to liquidate their holdings in anticipation of government oversight. To top it off, the likely outcome of the US elections could spur a recovery in the US dollar, which has been reeling against most of its counterparts in the past weeks due to election jitters.
Aside from all that, the US economy remains one of the most stable ones in the developed world so going long dollars could be a worthwhile trade. Even though the October jobs report came in slightly below estimates, the US central bank remains on track towards hiking interest rates before the end of the year and this should shore up demand for US assets.