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On-Risk Sentiment Cuts Buyers Short of Target at $425

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Buyers were just cut short of their target of $425.01 posting a recent high of $422.98 on the BitStamp exchange. Since then selling interest has dominated, bringing the price action back below $400 at $395.75 at the time of writing. Immediate support now stands at $392.07 and $373.35 while immediate resistances are at $397.75 and $404.16. A recovery in oil prices today has driven risk-on sentiment in markets, benefiting stock indices but pulling investors away from bitcoin.

European stocks were lifted by dovish stance from the European Central Bank (ECB) governor Mario Draghi today; he indicated that although deposit rates were not lowered today, the recent crisis in emerging economies and commodity markets means that monetary policy could be altered in the ECB meeting in March, representing a positive fundamental theme for bitcoin, especially BTC-EUR. This has boosted demand for Dollars and Yen today in markets, but could support BTC-USD as well, depending on what the Federal Reserve says and does in its upcoming meeting on Wednesday, January 27th.

The chart below shows the medium-term outlook for BTC-USD with the 4-hour price action, Ichimoku indicator, fractal levels and relative strength index. The price action is currently inside the Ichimoku cloud, indicating that a breakout in either direction is imminent; it suggests market participants are “waiting for news,” possibly waiting to see what the Federal Reserve says before deciding on the next direction. A close below the cloud at $387.92 will indicate the start of a downward trend whereas a close above the cloud at $402.50 will indicate a continuation of the upward trend.

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The price action is currently testing minor resistance provided by the base (dark-red) line, currently at $397.75. A close above this level is needed the validate a bullish outlook. The risk is more skewed to the upside, with several factors indicating that the price may just be finding support around this area before making another move up.

Firstly, the cloud is still green looking ahead and bearish dominance would be anticipated if it starts to change color to red. Secondly, bullish momentum is still indicated by the relative positions of the conversion (blue) line and base line. More confirmation will be given for buyers when there is a session close above the conversion line and will indicate a higher probability of making fresh highs above $422.98.

On the other hand, the conversion and base lines could potentially offer strong resistance and re-enforce the recent trend. The price action closed below the base line this morning offering a neutral bearish signal. Sellers are currently looking to move the price action toward fractal support at $381.45. Five session lows have been made since the recent high of $422.68, suggesting we could see the downtrend end before Saturday evening (GMT) before a switch in momentum occurs.

The short-term outlook is shown in the hourly chart below. The price action has closed below the Ichimoku cloud and bearish momentum will be further confirmed when the lagging line pierces below the Ichimoku cloud. On the other hand, we could see a switch in momentum as currently the conversion line is offering support at $394.66. Studying the relation between the closing price and conversion line going forward will indicate the next direction. A close above the conversion line will see buyers dominate and look for a move above $402.49 whereas an hourly close below the conversion will see bearish momentum dominate. Initial targets are in the region of $381.45 and $372.58.

The cloud has changed color but is very thin, suggesting the shift in momentum may be weak and temporary. Also, the relative strength index is starting to trend upward giving a bullish bias; this will be further validated when it moves above the critical 50 level. The most recent sell fractal lies at $401.00 and suggests a break above this level is needed to see new highs. On the other hand, for fresh lows sellers should look for a break of the most recent buy fractal at $388.32.