Bitcoin (BTC) Emerges “Head and Shoulders” Pattern Ahead of US Jobs Data: Valkyrie Investments

Analysts at alternative asset management firm Valkyrie Investments are closely watching what looks like a “head and shoulders (H&S)” bearish reversal pattern on bitcoin’s (BTC) daily chart.

The popular technical analysis pattern is characterized by two rallies or shoulders flanking a larger one, representing the head. Chart analysts see it as a sign of an impending bearish-to-bearish shift in the market trend, with traders often taking bearish bets when prices fall below the trend line connecting the first and second troughs.

“High time frame trend readings remain strongly bullish, in the short term [bearish] reversal chart pattern has emerged. While not classically meeting the textbook head and shoulders criteria, price action since March 19 has painted an extreme high with flanking lower highs,” Valkyrie analysts, led by chief investment officer Steven McClurg, wrote in a note to clients early this week.

“If price breaks below the neckline, a suggested target zone of $24,000 is possible based on the measured depth of the pattern extended below the neckline,” the note added.

A UTC close below the neck support of around $27,300 would confirm an H&S breakdown, opening the doors to a deeper decline.

While a graphical representation of price action in the form of lines or candlesticks helps to illustrate psychology, the patterns are a subjective form of analysis and often do not work as intended. In other words, a head and shoulders breakdown may not always lead to a more profound price drop and may catch traders on the wrong side of the market.

Macroeconomic developments can make or break trends and invalidate patterns. In other words, bitcoin could rally, invalidating H&S if Friday’s US non-farm payrolls data signals weakness in the labor market. It will strengthen the case for the Federal Reserve (Fed) to swing in favor of liquidity-promoting interest rate cuts.

Earlier this week, Federal Reserve Chairman Jerome Powell opened the door to a potential pause in the interest rate hike cycle, but at the same time stressed that the next move largely depends on incoming data. The Fed has raised interest rates by 500 basis points since March 2022 – the tightening cycle aimed at controlling inflation-prone cryptocurrencies last year.

According to a Reuters estimate sourced from FXStreet, the data due at 12:30 UTC likely to show the economy added 179,000 jobs in April after a better-than-expected 236,000 gain in March. Unemployment probably remained stable at 3.5 per cent. Average hourly earnings are estimated to have risen 0.3% month-on-month and 4.2% year-on-year, matching March’s pace.

The chance that bitcoin will soon witness a head-and-shoulders breakout will increase if wage growth and wage numbers beat expectations, putting a bid below the heavily shorted US dollar.