After starting the year with a bang, Bitcoin’s price stalled after hitting resistance at the $30k mark. Not wanting to be deterred, the bears set out to form a reversal pattern in the following months. It’s easy to identify a head-and-shoulders pattern, which is formed at the end of bullish trends and signals traders to look for the market’s minimum move. The minimum distance needed to confirm a reversal is around $23k, however, the market has yet to reach that point, which casts doubt on the validity of the pattern.
Will the head-and-shoulders pattern be invalidated? When will the bulls retake control?
These questions can be answered by looking at Bitcoin’s negative correlation with the US dollar. Since institutional investors have begun to add Bitcoin to their portfolios, it has become a regular financial asset, trading alongside other assets. The theory can be tested by looking at the EUR/USD chart. When the EUR/USD dropped below 0.96 in October, Bitcoin bottomed out around the same time. Then, when the EUR/USD rallied above 1.10, Bitcoin followed a similar pattern.
It’s clear that the US dollar and Bitcoin move in sync, which is why Friday’s NFP report is so important. If the dollar falls, Bitcoin will rise, and bulls should keep their eyes on the $30k mark, which would invalidate the head-and-shoulders pattern.