Bitcoin Weekly Forecast: A crypto beginner’s guide to Nonfarm Payrolls and its effects on BTC

Bitcoin (BTC) price and the general crypto markets have been highly correlated with the stock markets since the COVID-19 crash in March 2020. Since then, macroeconomic news have been affecting Bitcoin, Ethereum and other altcoins, and the Nonfarm Payrolls (NFP) monthly release is one such significant event, with the December version to be published on January 6 at 13:30 GMT. 

What are Nonfarm Payrolls?

The Nonfarm Payrolls, also known as NFP, is a measure of the number of workers that are employed during the prior month in the United States (US). The statistic is provided by the Bureau of Labor Statistics (BLS) and excludes jobs like farm workers, government workers, private households, proprietors, and non-profit employees.

Why is NFP important?

According to the BLS, the Nonfarm Payrolls number consists of jobs that directly or indirectly contribute roughly 80% to the United States Gross Domestic Product (GDP). Hence, the NFP provides an important assessment of the job landscape and, in turn, gives an outlook of current market conditions.

Additionally, NFP are also closely scrutinized by the US central bank, the Federal Reserve (Fed), to assess their monetary policy. The Fed does have a double mandate to keep both employment and inflation figures at healthy levels for the economy. Therefore, the measure of the jobs added or lost will set the tone for the upcoming Fed interest rate hike decision.

Here are some quick examples.

Instance 1: If the NFP data for December comes in higher than the prior month, it indicates that more jobs have been added. This is a positive development and will indicate a stronger economy, allowing the US Dollar to strengthen. 

A stronger US Dollar is usually negative for the stock market. Hence, a higher Nonfarm Payroll number that exceeds expectations usually causes the stock market to temporarily take a hit. Since the crypto markets have been highly correlated to the traditional markets in recent times, it will likely cause a similar effect on Bitcoin price.

Instance 2: If NFP numbers come in lower than expectations, it may lead to  a weaker US Dollar, which will inadvertently cause the stock and crypto markets (including BTC) to rally.

Visualizing crypto vs. NFP

Taking a look at the big picture of Nonfarm Payrolls data vs. Bitcoin price, this provides a generalized view of what has happened so far and what to expect next.

The chart attached below shows that Bitcoin price has almost always dropped when the actual NFP data has come out higher than expectations or forecasts. The only exceptions can be seen in August and December 2022, where BTC saw a short-term uptick despite the weak NFP numbers.

BTC/USD 4-hour chart vs. NFP

December NFP report expectations and ADP

On January 6, the December Nonfarm Payrolls numbers will be announced at 13:30 GMT and the forecasts hover around 200k. To assess where the NFP numbers will land, investors can take a look at the US Automatic Data Processing (ADP) Employment numbers, which were released on Thursday.

ADP tracks the level of nonfarm private employment and is published usually two days before the BLS publishes the NFP numbers – although this week the data came out on Thursday due to the shortened week on New Year celebrations. Hence, market participants can use ADP to get a basic understanding of what to expect from Nonfarm Payrolls.

According to the ADP numbers released on January 5, private employment increased by 235,000 last month as opposed to the expectations of 150,000. Since ADP numbers beat expectations, investors are expecting a similar trend for the NFP.

So, a higher-than-expected number will be better for the US Dollar, which will negatively impact the stock and cryptocurrency markets. 

Bitcoin price could tank

Bitcoin price is struggling to overcome the resistance level at $16,836, which is the highest volume traded level since November 5. Interestingly, it also coincides with the midpoint of the larger range that BTC has set up, extending from $15,443 to $18,230. 

Since the Relative Strength Index (RSI) is already retracing from the overbought zone, the chances that bulls will make a comeback are slim. Additionally, strong NFP numbers will result in a sell-off for BTC.

A breakdown of the $16,000 psychological level could likely result in a sweep of the equal lows at $15,443.  

BTC/USDT 12-hour chart

If the sell-off caused by the announcement of the NFP numbers is followed by a quick rise in buying pressure and a recovery rally, things could favor the bulls. If such a situation happens, the RSI should bounce off the midpoint at 50.

In such a case, Bitcoin price could bounce off the $16,624 support level and trigger another leg-up to $17,306 and even $18,401.

Also Read: Ethereum price may drop 12% before it reaches $1,300