Bitcoin Weekly Forecast: Nonfarm Payrolls on the radar after Powell’s speech propels BTC higher

Bitcoin (BTC) price is at an inflection point as it continues to rally amid multiple sell signals on lower time frames. The Nonfarm Payrolls (NFP) report, including the unemployment rate and average hourly earnings, is set to be announced on February 3 at 1330 GMT. This high-impact macro event, like the FOMC and interest rate decision events on February 1 and 2, will probably induce high levels of volatility in the markets and will help set the tone for the next move.

Also read: A crypto beginner’s guide to Nonfarm Payrolls and its effects on BTC

What to expect from Nonfarm Payrolls?

Economists estimate that the Nonfarm Payrolls report will show the addition of 185,000 jobs in January, as compared to December’s 223,000. Although this will mean a net decline, if the real figure comes in lower than expectations, it would be indicative of a weakening economy and hence bad for the US Dollar. This would inadvertently cause risk-on assets like Bitcoin to rally since BTC is inversely correlated to USD.

If the NFP headline number comes in above expectations, it would be positive for the US Dollar and hence cause the risk-on assets like Bitcoin to slide lower. Such a reading would undo the recent rally that cryptocurrencies witnessed after the Federal Reserve’s Policy Meeting on Wednesday.

While NFP headline numbers are what investors pay attention to the most, other components in the NFP report,  like Average Hourly Earnings and the Unemployment Rate also may contribute to market volatility. 

Currently, economists are forecasting that earnings are set to increase from 4.6% to 4.9% YoY. However, it’s not the actual versus forecast that matters, but how far the actual numbers deviate from the expectations that move the market.

Average Hourly Earnings and the Unemployment Rate

The average hourly earnings is a significant indicator of labor cost inflation and of the tightness of labor markets. A vast difference between actual and expectations in the positive region would be positive for the US Dollar and hence bearish for the risk-on assets like stock markets and Bitcoin.

The third important component is the Unemployment Rate; it provides a full picture when combined with the headline NFP numbers. If this ratio is higher, it means that there are more unemployed folks and is generally seen as a negative sign for the economy. A decline in the figure is representative of a stronger economy and hence positive for the USD and bearish for risk-on assets.

Currently, the Unemployment Rate is forecast to come in at 3.6% in January 2023, which is higher than the previous month’s 3.5%. If the actual number comes in even higher than expectations – and by a large magnitude – the impact could be negative for the US Dollar but positive for crypto markets. 

Investors should note that the unemployment rate by itself cannot determine the market moves and should be combined with a headline reading, the Nonfarm Payroll, to get a better picture.

Also read: Bitcoin whales are playing the long game, here’s how retail investors can tag along

Bitcoin price rallied after FOMC Meeting, why?

Bitcoin price was hovering around $23,000 before the US Federal Reserve hiked interest rates by 25 basis points on January 31, but went on to rally 5.1% after the announcement. In his speech, US Federal Reserve Chairman Jerome Powell adopted a hawkish tone, but some dovish comments took precedence, causing a rally among risk-on assets.

One of the more significant comments from Powell was that this was the first time the Fed had noticed “the start of a disinflationary process.”

The Fed Chair also mentioned that the board of governors did not see the need to overtighten policy. 

Powell mentioned that inflation in the goods sector was seeing a noticeable decline, however, other sectors were still plagued with high inflation. The Fed mentioned that they would have to wait for more data to see if their policy’s direction or path needs to alter. 

A look at crypto markets’ underbelly

Bitcoin price provides an ambiguous outlook. Although BTC looks like it is ready to retrace on a weekly, three-day and daily time frame, there might still be a run-up to $25,000. If bulls manage to flip this psychological level and hold above it, it would sidestep the intention of bears. 

On the weekly chart, Bitcoin price is approaching the 200-week Simple Moving Average (SMA) at $24,836, which coincides with Momentum Reversal Indicator’s (MRI) stat trend resistance level (red dotted line) at roughly $25,000.

A rejection at $25,000 could push the Relative Strength Index (RSI) lower, which already looks like it is ready for a pullback to the midpoint at 50.

Adding credence to this hurdle is the three-day chart, which also points to the MRI’s risk line (blue) at $25,000.

On the daily chart, Bitcoin price sits comfortably above a recently flipped resistance level at roughly $22,900. A further push up to $25,000 is certainly likely on the daily chart, especially if the NFP event triggers a bullish outlook. 

Hence, the $25,000 resistance cluster will play a crucial role in determining if sellers will take control. In the case of a successful coup that places sellers on the throne, Bitcoin price is likely to find support between $21,000 and $18,600.

A breach of the critical support level at $18,600 could cause BTC to nosedive to MRI’s state trend support (green dotted line) at $16,499.

BTC 1-week, 3-day, 1-day chart

While the bearish outlook seems dependent on $25,000, a surge in buying pressure due to the NFP event could scramble sellers’ plans. 

If this spike in bullish momentum pushes Bitcoin price to flip the said hurdle into a support floor, it will invalidate the bearish thesis and potentially trigger a rally to the next significant blockade at $30,000.