This week's keywords in the U.S. financial market — inflation, interest rate cuts, with specific highlights:

• CPI data on Wednesday: If inflation remains sticky, the Federal Reserve may continue to delay interest rate cuts.
• Powell's attitude at the congressional hearing: Focus on whether Powell will hint at a more dovish stance or maintain caution.
• Trump's tariff policy: If the trade war escalates, it could lead to a resurgence in inflation, making it harder for the Federal Reserve to cut rates.

• CPI data may "hit the brakes"

On Wednesday at 21:30 (Singapore time), the U.S. January CPI data will be released, marking a key point in the Federal Reserve's future interest rate cut path. Over the past three months, inflation data has consistently rebounded, and the market generally expects the January CPI year-on-year increase to remain at 2.9%, with core CPI possibly slightly retreating to 3.1%. However, major sectors such as housing, food, and services may still exert upward pressure on inflation, and there is a lag effect in government statistics, so short-term pressure on CPI remains significant. Additionally, the recent cold wave has led to rising energy prices and persistently high food prices, meaning the January inflation data may not surprise the market much, and there is even a possibility of slightly exceeding expectations.

• No hope for a March rate cut, Powell's stance is crucial

At the January FOMC meeting, Powell already dampened market expectations by clearly stating that there would be no rush to cut rates in the short term. The latest consumer confidence index shows that consumer concerns about future inflation have noticeably increased, adding more uncertainty for the Federal Reserve.

Moreover, at the December meeting last year, the Fed's dot plot indicated three expected rate cuts in 2024, but since then, officials have continuously "dampened" market expectations, suggesting that rate cuts may not come as quickly. The market initially anticipated a March rate cut, but that hope has essentially evaporated. The probability of a June rate cut is also declining, with traders currently locking in expectations for after July. This means that the pace of rate cuts this year may be slower than the market initially expected.

However, Powell will attend hearings in the Senate and House on Tuesday and Wednesday, which will be a key moment for the market to gain clues about Federal Reserve policy. In the face of pressure from Republican lawmakers for rate cuts, Trump's tariff policy, and subtle changes in inflation data, Powell's statements will be very important!

If he continues to emphasize "no rush to cut rates" and "needs more data support," market expectations for rate cuts may be revised down again, U.S. Treasury yields may continue to rise, and pressure on the U.S. stock and cryptocurrency markets will also increase. Conversely, if he hints at greater confidence in a decline in inflation or reveals some form of "easing" signal, the market may rekindle hopes for a June rate cut.

• Trump's tariffs may reignite inflation

While the market is focused on CPI and the Federal Reserve's rate cut expectations, Trump has once again thrown a "bomb." He not only maintains a 10% tariff on China but also imposes 25% and 10% tariffs on imported steel and aluminum products, respectively, and even levies a 25% tariff on goods from Mexico and Canada.

What does this mean for the market? Simply put, rising tariffs = rising commodity prices = increased inflation pressure. Once the tariff costs are passed on to consumers, inflation may experience a new round of resurgence, directly impacting the Federal Reserve's decision-making space. If the Federal Reserve sees inflation rising again due to tariff issues, the original rate cut plan may be completely delayed, or they may be forced to maintain high rates for a longer time.

How is the market reacting?

• U.S. dollar strengthens, Treasury yields rise — Market confidence in rate cuts declines, Treasury yields continue to rise, and the dollar gains support.
• U.S. stocks and Bitcoin both under pressure — With cooling rate cut expectations and potential inflation resurgence, funds may flow from high-risk, high-reward markets to safer, more stable markets, undermining bullish confidence in U.S. stocks and the cryptocurrency market, which may face downward pressure and increased short-term volatility.

• Using custom indicators to welcome the CPI "storm"

Historically, different outcomes of CPI data may have the following impacts on BTC prices:

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1. CPI higher than expected (high inflation pressure)

The Federal Reserve may continue to maintain a tightening policy, leading to increased market risk aversion and pressure on risk assets. Bitcoin may decline, with a probability of about 69.57%.

Trading strategy: Consider reducing long positions or appropriately shorting, waiting for the market to digest the negative news.

2. CPI lower than expected (inflation easing)

The market may expect the Federal Reserve to cut rates earlier, increasing liquidity and benefiting risk assets like Bitcoin. The probability of Bitcoin rising is about 78.57%.

Trading strategy: Consider adding positions on dips or chasing short-term gains.

3. CPI in line with expectations (2.9%)

Since the market has already fully priced this in, BTC may not experience significant volatility. Bitcoin is likely to rise, but the increase may be limited.

Trading strategy: Maintain existing positions and wait for the market to clarify direction further.

Using custom indicators for backtesting, the above strategies can maintain stable profits in most cases.

• Backtested pair: OKX BTC/USDT perpetual
• Backtesting period: 1 hour
• Backtesting range: within 6 months
• Take profit: 3%
• Leverage: 3X

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Specific strategy (public, available for subscription): https://www.aicoin.com/link/script-share/details?shareHash=dvagBpyb0baVq10L

Special statement: The strategy is for reference only and does not constitute any investment advice. Please use it according to your own situation, and you bear the risks of gains and losses!

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