A new leg lower for BTC/USD?

Bitcoin, BTC/USD – Technical Outlook:

• Bitcoin has fallen below important technical support.
• Has it resumed its weakness in the medium term?
• What is the outlook for BTC/USD and key levels to watch?

BITCOIN SHORT TERM TECHNICAL OUTLOOK – NEUTRAL

Bitcoin has fallen below the June low of 17590 after last week’s decline. However, it may be premature to conclude that cryptocurrencies have resumed their weakness in the medium term.

BTC/USD has pulled back from the top of an upward-sloping channel from September, coinciding with the 89-day moving average (see daily chart). This is not surprising given the returns in August and September were limited by the moving average. In the process, however, BTC/USD has not only broken below support at the November 3 low at 20040, but has also fallen below the June low (the previous update had highlighted the risk of a retest of the June low at 17590.

BTC/USD weekly chart

Chart created using TradingView

While the drop to a new two-year low is significant, in itself, it may not be sufficient to conclude renewed bearishness for two reasons. BTC/USD’s losses have stopped in recent days after the big drop last week. A new downtrend is usually associated with a market making new lows, and the lack of that, at least for now, opens up the faint possibility of a false break lower.

Second, the momentum on the weekly chart has not made a new low, although the spot fell below the June low. Momentum is an indication of power, and when support levels are broken on stronger downside momentum, it generally means more price decline. The 14-week relative strength index is now above its June low – suggesting positive momentum divergence (a new price low associated with a higher momentum low).

BTC/USD Daily Chart

Chart created using TradingView

Taken together, this may be part of a broader base-building process in BTC/USD, which is associated with frequent retests of lows and high volatility around those lows. But for this view to hold, BTC/USD must at least break above immediate resistance at Thursday’s high of 18200. Any break above 18200 could bring in the November 5 high of 21470.

On the downside, if BTC/USD closes this week below last week’s low, it will bring into focus the 2019 high of 13895. While not unlikely, this could be a low-probability event (scenario 2 in the chart). In comparison, scenario 1 appears to be a relatively higher probability outcome.

— Posted by Manish Jaradi, Strategist for DailyFX.com