Bollinger Bands is a technical analysis indicator that signals a bitcoin (BTC) volatility explosion. This has caught the attention of traders and analysts in advance of the U.S. Inflation Report for June.

Bollinger bands are very tight. How tight are they? This kind of squeeze has only happened a few times in the last decade. The majority of squeezes have been a tipping point before a breakout, said Josh Olszewicz in a tweet on Wednesday. He added that the last time he saw squeezing like this was early January, right before bitcoin’s bullish revival.

John Bollinger the inventor of this indicator has also noticed the so-called tightening or squeeze of Bitcoin’s Bollinger Bands.

Bollinger bands can be derived by placing volatility line two standard deviations either above or below the simple moving average (20-day SMA) of an asset’s price. The bands are influenced by the level of price volatility. A tightening or squeezing of the band represents volatility contraction, while a widening of the band represents volatility explosion.

When bands are tightening sharply, traders get ready for a big movement and trade in the opposite direction of the price breach. It is believed that during consolidation the market gains energy, which can be released in either direction.

Divide the spread between upper and lower bands by the 20-day SMA price.

According to TradingView, Bitcoin’s Bollinger bandwidth has dropped to 0.04, the lowest level since early January.

According to Nunya Bizniz, the bandwidth was this low just a few times in Bitcoin’s 14-year existence. We might be seeing a volatility boom soon.

The Bollinger bands are at their narrowest since January. (TradingView) (TradingView)

Tighter bands do not always imply immediate and notable volatility explosion/directional clarity in the market.

The Federal Reserve will most likely be influenced by the U.S. CPI, which is scheduled to be released on Wednesday, 12:30 UTC. This could cause volatility in the markets.

According to Wall Street Journal‘s survey of economists, the headline CPI year-on-year is likely to be down to 3.1% from 4.0% in May, and the core CPI to 5%, from 5.3%.

The headline would be closer to the Fed target of 2% with a reading of 3.1%. This would weaken the case for continued interest rate increases or monetary tightening, which was partially responsible for the crypto crash last year. If inflation data is as expected, bitcoin could break free of the Bollinger Band squeeze.

The report released on Tuesday showed that used cars, which is one of the main components of CPI in the U.S., have fallen by 10.3% in the last year. June marked the 10th consecutive monthly drop.

So, risk assets, including bitcoin, may see downside volatility if the headline CPI and the core figure come in hotter-than-expected. CoinDesk data shows that Bitcoin was trading flat at $30,630 as of press time.

Parikshit Miishra is the editor.