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The US jobs market report for March is set for release on Friday and has the potential to really shake things up in the Bitcoin market.
Traders will be closely scrutinizing the non-farm payrolls figures (the net change in jobs in the economy), which is expected to moderate to 239,000 from 311,000 a month ago, as well as measures of labor market slack and wage growth.
Measures of labor market slack like the unemployment rate show that the US labor market has, up until now at least, been in historically good health over the last year or so.
The unemployment rate is seen remaining close to multi-decade lows at 3.6% in March
Wage growth, meanwhile, continues to press ahead at a pace well beyond the Fed’s 2.0% inflation target, although it has admittedly been easing in recent months, with further easing expected on Friday.
Key US Jobs Report Follows String of Weak US Data Releases
US labor market data released thus far this week in the run-up to Friday’s report has generally surprised to the downside and, as a result, most analysts expect Friday’s report to come in weaker than expected as well.
JOLTs data on Tuesday for February showed job openings in the US economy (a good proxy for labor demand) falling to a two-year low under 10 million.
Payroll company ADP’s estimate of the net change in employment in the US surprised to the downside on Wednesday and annual revisions to the number of weekly jobless claims being made in the US on Thursday saw upward revisions.
Weak labor market data this week comes in tandem with two weaker-than-expected ISM PMI reports – the first one, released on Monday, showed the US manufacturing sector in a deeper-than-expected contraction.
The second, out on Wednesday, showed growth in the US services sector slowing to a near standstill.
Recession and Fed Rate Cutting Cycle Bets Rise
All said, the poor data this week has fed into expectations that 1) the delayed effects of the Fed’s tightening over the past 12 months are finally being felt across the economy and a recession later this year is likely on the way and 2) the Fed will soon be cutting interest rates as a result.
March’s bank crisis and the chilling impact this is expected to have on lending over the coming quarters further adds to downside risks faced by the US economy, and further strengthen the case for a Fed cutting cycle.
These are macro themes that have weighed heavily on the US dollar and US yields in recent weeks and have been strongly supportive of the Bitcoin price.
Whilst BTC/USD has been going sideways near $28,000 for the last three weeks, it remains up in the region of 70% for the year and up a staggering 43% versus last month’s lows under $20,000.
Friday’s US jobs data will be viewed through the lense of how it affects these macro narratives – data that shows a weakening US labor market will strengthen the case for Fed cuts to stave off a suspected incoming recession.
On the other hand, stronger-than-expected data might alleviate some recession concerns and lead to a rebuilding of Fed tightening bets.
For what it’s worth, according to the CME’s Fed Watch Tool, US money markets currently assign a near-50/50 probability that the Fed hikes interest rates at its meeting next month, with this hike (if it was to go ahead) seen as the last of the cycle.
Money markets also assign a roughly 50% chance that the Fed will have cut interest rates by at least 25 bps below their current level (of 4.75-5.0%) by July, before taking interest rates down to around 4.0% before the end of the year.
How Friday’s Data Will Impact Crypto
This is an unusual US jobs report release given that US markets will be closed for the Good Friday holiday.
Normally crypto takes its cue from the reaction in the US dollar, US yields and US stock market.
But the likes of Bitcoin won’t have those asset classes to monitor and trade off of.
Due to the holiday, liquidity will also be thin, so expect trading conditions to be very choppy and unpredictable.
In terms of the market reaction playbook, its likely to look something like this:
- Stronger-than-expected jobs report = Weaker crypto (as the US dollar, yields and Fed tightening bets rise).
- In-line with expectations = Neutral market reaction.
- Weaker-than-expected jobs report = Stronger crypto (as the US dollar, yields and Fed tightening bets fall).
As noted in recent articles, Bitcoin is very much primed for a breakout from a technical standpoint, having recently formed a pennant structure.
A stronger jobs report could be the catalyst to push Bitcoin lower again towards support-turned-resistance in the $26,500 area, or even support around $25,500.
A weaker-than-expected report could push Bitcoin above recent highs in the mid-$29,000s, above $30,000 and on towards the key $32,500-$33,000 resistance area.
Of course, there is always a risk that a weak report hurts Bitcoin as people worry about an incoming US recession, and that a strong report helps Bitcoin as people’s recession fears ease.
But in the longer run, financial conditions and what happens with the Fed are more important to Bitcoin than economic growth.