How will Bitcoin be affected by the US NFP report?
US nonfarm payrolls are expected to rise by 205,000 in February after an unexpected rise in January. A relatively hawkish statement by Jerome Powell on Tuesday sent prices for bitcoin and other cryptocurrencies down. If upcoming employment and inflation data outperforms expectations, the Fed is likely to continue with larger interest rate hikes, pushing bitcoin and cryptocurrencies lower.
Off Farm Wage (NFP) Data
US nonfarm payrolls (NFP) data surprised investors with a relatively high peak of 517,000 jobs in January. The forecast for February is a more modest 205,000 and it remains to be seen if there will be any surprises in the data.
Analysts expect the Federal Reserve to continue aggressively raising interest rates if employment and inflation continue to beat expectations. This could increase pressure from sellers of risky assets such as bitcoin and cryptocurrencies.
What is the NFP report, and is it a key input to US Federal Reserve policy making?
Nonfarm payrolls (NFP) measures the number of workers in the United States, excluding workers in agriculture, private households, nonprofit organizations, and the active military. The Bureau of Labor Statistics (BLS) conducts surveys of private and public organizations in the United States and informs the public about non-farm payrolls in the monthly State of Employment report.
The NFP and the unemployment rate are two of the main indicators, but policy makers use all available data to assess the health of the US economy and predict future economic activity.
It is important to note that an increase in NFP indicates that the economy is growing, spending must increase, and a sudden increase in employment could lead to higher inflation. This is considered negative for the economy and takes into account the decision of the US Federal Reserve when determining the next increase in interest rates.
What happened in the last five NFP reports?
The US NFP data has surprised market participants the last five times. Every time job vacancies came in, the job market was tight, even as companies braced for the economic downturn and layoffs in the tech sector.
It is important to note that the market reaction is influenced not so much by the employment figures themselves, but by the difference between actual and forecasted data. As shown in the chart below, the price of bitcoin reacted differently to the last five releases of the US NFP data, where the actual numbers were higher than expected.
The numbers shown in the chart below take into account the price reaction to bitcoin during the week following the release of the US NFP data.
Bitcoin Price Reaction to NFP Report Release
Other factors influencing the price of Bitcoin over the last five releases of the data include the collapse of the FTX exchange, the bankruptcy of several crypto lenders and firms, the U.S. regulatory action against cryptocurrency exchanges and stablecoin issuers, the announcement of the return of Mt. Gox BTC to lenders, among others.
The chart shows that the immediate (same day) reaction was a drop in the price of bitcoin. When the actual NFP figure is 300,000 or more, this usually results in increased selling pressure on risky assets such as bitcoin and cryptocurrencies.
According to FXStreet data, a 205,000 increase is forecast for February.
Jerome Powell’s recent hawkish comment pushed bitcoin and crypto to decline
Speaking before the Financial Services Commission earlier this week, US Federal Reserve Chairman Jerome Powell made belligerent remarks. Powell commented on the January data on employment, consumer spending, output and inflation and said that the easing trends have partially reversed.
Powell has been quoted:
“…However, the scale of the reversal, together with the previous quarter’s revision, suggests that inflationary pressures are higher than expected at our previous FOMC meeting.”
The Fed chairman said that over the past few months, inflation has slowed down, but the process of reducing inflation to 2% is a long and thorny path. As the latest economic data turned out to be stronger than expected, the final level of interest rates should be higher than expected. Analysts are expecting a 50 bps increase instead of 25 in March.
What to expect from risky assets
Eren Sengezer, senior analyst at FXStreet, commented on the US Senate’s readiness to accelerate the pace of rate hikes. Sengezer notes that the Fed’s hawkish rates are dominating the markets. The expert believes that the disappointing NFP indicator, lower than expected, may be replaced by a recovery in prices for risky assets.
“The CME Group’s FedWatch tool shows that markets are pricing a 78% chance of a 50 basis point rate hike in March, suggesting there is more room for the US dollar to strengthen further if NFP breaks market consensus. In this scenario, risk-sensitive assets are likely to fail to find demand.”
On the other hand, a disappointing NFP drawdown of around 100,000 could leave investors thinking about the possibility of a 50 basis point upswing at the next meeting. In that case, we are likely to see risk recovering at least to next week’s CPI data.
The current state of Bitcoin and where the price will go next
Bitcoin market participants are bearish ahead of the release of the US NFP data. Silvergate FUD: Cryptocurrency exchanges provide security after the closure of the Silvergate bank, which negatively affected the price of bitcoin.
Bitcoin holders are concerned about growing selling pressure as a result of a combination of Powell’s hawkish comment and the super-anticipated increase in non-farm payrolls in February 2023. The price of bitcoin is in an uphill battle to recover from the fall on March 3rd from $23,539 to USD. $22,259.
As shown in the chart below, the price of Bitcoin is in a short-term uptrend that started in January 2023. The asset is currently trading sideways after falling from the $25,200 level in February. The price of BTC is currently below its long-term, 100- and 200-day exponential moving averages.
At $21.771, the price of Bitcoin is above the 50-day moving average EMA at $21.315.
Bitcoin (BTC/USD) daily chart
If Bitcoin starts its relief rally, the asset should face resistance at the 100- and 200-day EMAs at $22.325 and $21.797. The upside target is $25.205, which served as resistance for most of 2022 and 2023.
The lower targets are $21.533 and $18.725, both of which acted as resistance and were aimed at supporting Bitcoin during its rally to $25.205.
The relative strength index is currently at 38.40, with no signs of divergence on the one-day price chart. There is scope for the largest asset by market capitalization to recover, although it remains to be seen how NFP data in the United States impacts the price of bitcoin.
Ekta Murya, FXStreet
Ekta Murya is currently pursuing an MBA in Finance. He has been working in the field of cryptocurrencies since 2017. She has held positions in the marketing team of major Indian cryptocurrency exchanges Koinex and CoinDCX. She is interested in intraday trading and the derivatives market.
The opinions expressed here are solely those of the author and do not necessarily reflect the views of Forex Quebec. Every investment and trading move involves risk, so you should do your own research when making a decision.
The opinions expressed here are solely those of the author and do not necessarily reflect the views of Forex Quebec. Every investment and trading move involves risk, so you should do your own research when making a decision.
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Disclaimer: The information and opinions contained in this report are for general information only and do not constitute an offer or solicitation to buy or sell foreign exchange contracts, CFDs and cryptocurrencies. Although the information contained herein has been obtained from sources believed to be reliable, the author does not guarantee its accuracy or completeness and accepts no liability for any direct, indirect or consequential damages that may result from anyone relying to such information.