Analysts from Valkyrie Investments, an alternative asset management company, are closely watching what appears to be a bearish H&S pattern on the daily bitcoin chart (BTC).

Two shoulders or rallies flank a larger one that represents the head. Chart analysts view it as an indication of a shift from bullish to bearish in the market’s trend. Traders often place bets on the downside once the price drops below the trendline that connects the first and second lows.

“High-timeframe trend metrics are firmly bullish. A near-term [bearish] chart pattern has appeared.” The price action has been a “head and shoulders” pattern, but not according to textbooks. Since March 19, the chart shows an extreme high, with two lower highs flanking it.

The note said that if the price breaks below the neckline a target zone of $24,000 could be possible, depending on the depth of the pattern below the collar.

The daily chart of bitcoin shows a head-and-shoulders pattern, which indicates near-term weakness for the cryptocurrency. (Source: Valkyrie, TradingView) (Valkyrie, TradingView)

A UTC that is close to the neckline support, at about $27,300, would confirm the H&S breakdown and open the door for a further decline.

Although a graphical representation in the form lines or candlessticks can help illustrate psychology, these patterns are subjective and do not always work as intended. A breakdown of the head-and-shoulders pattern may not always result in a greater price drop, and can trap traders who are on the wrong side.

Macroeconomic changes can invalidate trends or make them stronger. If Friday’s U.S. Nonfarm Payrolls Data indicate a weak labor market, then bitcoin could rally and invalidate the H&S. This would make it easier for the Federal Reserve to switch its policy in favor of interest rate reductions that boost liquidity.

Fed Chairman Jerome Powell hinted at a possible pause in rate hikes this week. However, also stressed the fact that the next step depends heavily on the data. Since March 2022, the Fed has increased rates by 500 basis point (or 5%). The tightening cycle to control inflation caused cryptocurrencies to be roiled last year.

According to a Reuters estimation sourced from FXStreet the data is expected to show that the economy added 179,000 new jobs in April after a better than expected 236,000 in March. The unemployment rate is likely to remain at 3.5%. The average hourly wage is forecast to have increased by 0.3% from month-to-month, and 4.2% on an annual basis. This pace matches that of March.

If the wage growth figure and the payrolls figure exceed expectations, the odds of bitcoin experiencing a head-and shoulders breakdown will increase. This would put a bid below the heavily-shorted U.S. Dollar.

Parikshit Miishra is the editor.