The crypto market is up today and Bitcoin (BTC), Ether (ETH) and numerous altcoins rallied ahead of United States Federal Reserve Chairman Jerome Powell’s speech. At the moment, investors are anticipating that December could see the start of smaller-sized interest rate hikes after the most recent Consumer Price Index report came in under market participants’ expectations.Crypto and equities markets responded positively ahead of Powell’s Federal Open Market Committee (FOMC) speech and cooling inflation figures could back the reason for softer rate hikes. Depending on the subject matter and tone of Powell’s speech, markets could see further upside, or a total retrace of the intraday gains could occur. Generally, the crypto market is still significantly down from all-time highs, but Bitcoin’s price reacted positively by rallying to 1-month high at $18,147 on Dec. 14. Despite the gains, many traders are still warning of a final capitulation in BTC price. With volatility still likely, some analysts believe the bottom is still not in for the crypto market and BTC on-chain losses hit record highs in 2022. Conversely, with all the capitulations, some Bitcoin analysts believe the current market valuation is a buy signal. The picture for 2023 remains muddy with growing centralized exchange (CEX) fears and the potential of upcoming regulations having an anti-crypto bent., One thing investors are hoping for is that a cooling dollar (DXY), reductions in the inflation rate and smaller-sized rate hikes translate to more interest in risk assets like BTC and Ether. Let’s examine three of the major factors influencing crypto market strength on the day.DXY, S&P 500, Dow Jones, Ether and Bitcoin. Source: TradingViewFOMC takes center stage after CPI print points to reduced inflationHigh inflation has been a year-long problem and back-to-back negative CPI reports have given the Fed multiple reasons to continue raising rates. After the CPI data boosted Bitcoin upward over $18,000 on Dec. 13, further positive data may have confirmed that inflation peaked before Powell’s speech. If inflation were to level off, Powell suggested smaller hikes in subsequent months would likely result in boosted sentiment from market participants. In his Brookings Institute speech on Nov. 30, Powell noted:“It makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down. The time for moderating the pace of rate increases may come as soon as the December meeting.”December’s Federal Open Market Committee (FOMC) is currently expected to yield a hike of 25 to 50 basis points, not the usual 75 basis points, according to CME Group’s FedWatch Tool.Fed target rate probabilities chart. Source: CME GroupPowell has cautioned that aggressive monetary policy may continue until the 2% target inflation rate is reached:“Despite some promising developments, we have a long way to go in restoring price stability”Analysts and traders analysts celebrate the “positive” CPI newsWhile Bitcoin still has risk events that can impact the price, BTC futures are showing traders switch from majority short to long. According to Coinglass, 60.16% of traders are long Bitcoin at a ratio of 1.51 compared to BTC shorts. Bitcoin long versus short ratio. Source: CoinglassThe market also is trending long for Ether. According to Coinglass, 56.17% of traders are long Ethereum at a ratio of 1.28 compared to Ether shorts. Charles Edwards, the founder of crypto asset management firm Capriole Investments is quite bullish on the upcoming FOMC news.Inflation has peaked. Change in money supply is negative for first time in over half a century. Pivot coming. pic.twitter.com/Y7ZUBjTjoi— Charles Edwards (@caprioleio) December 14, 2022
Related: Ethereum rallies to $1,350, but derivatives metrics remain neutral to bearishToday’s Bitcoin gains still put BTC below the 5-month trading range. If the FOMC leads to a Bitcoin upswing, Delphi Digital believes the price will still encounter resistance in the $18,400 to $18,600 range.Bitcoin market analysis analyzing BTC resistance levels. Source: Delphi DigitalAccording to Delphi Digital, the Ethereum network gained volume in the wake of FTX collapse and has faired better than Bitcoin with Ether price still not revisting the peak yearly lows seen in June. In addition to potentially positive FOMC news, on Dec. 14 Ether was also declared a commodity by the Commodity Futures Trading Commission, which could be positively impacting the price. Ethereum market analysis analyzing ETH resistance levels. Source: Delphi DigitalWhile Bitcoin and Ethereum price has been impacted by the endless flow of negative news, today’s rally shows a flash of bullish sentiment. The dollar continues to cool offAfter a parabolic uptrend throughout 2022, the U.S. dollar index is now beginning to show signs of cooling off.The U.S. dollar index (DXY) recently hit its highest levels since 2002, and momentum may have cooled after the recent CPI and PPI print showed the Fed making some progress with run-away inflation. In a perfect world, investors would ideally view a retracting DXY as a reason to increase sentiment for risk assets like cryptocurrencies.In the meantime, DXY is under pressure and its descent came in lockstep with a return to form for Bitcoin and altcoins. Historically, a cooling DXY is followed by Bitcoin price moving in the opposite direction.Overall, crypto markets are likely to continue seeing price whipsaws and most analysts agree that there are plenty of volatile days ahead. While the positive news of easing inflation ahead of the FOMC is providing a nice short-term bump in crypto prices, the market’s reaction to Powell’s ultimate decision on Dec. 14 will be the true determinant of which direction the market chooses to take. The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk, and you should conduct your own research when making a decision.