The non-farm data from last night seemed favorable, but the market instead plummeted, and many novice investors and retail traders may not have understood why.
I will clarify this for everyone from several aspects, so that next time non-farm data is released, you can better understand market trends.
The data looks good, but the market sees it as "bad news"
Strong non-farm employment data indicates that the U.S. economy is doing well. However, for the Federal Reserve, a strong economy means there is no rush to cut interest rates, and they may even continue to maintain high rates. In a high-interest-rate environment, the U.S. dollar typically strengthens, and U.S. Treasury yields also rise, which may lead funds to flow out of risk assets.
So, although the non-farm data itself is favorable, the market interprets this to mean that high interest rates will last longer, which is detrimental to the cryptocurrency market.
Market expectations contradict reality, triggering a sell-off
Before the non-farm data was released, many expected the data to be weak, thinking this would give the Federal Reserve a reason to cut rates. However, the actual data was stronger than expected, breaking this expectation and resulting in an unexpected bearish reaction. Large funds and institutions took this opportunity to sell off, causing a rapid decline in the market.
Institutional rebalancing and liquidity issues
A stronger U.S. dollar and rising Treasury yields make institutions more willing to place their money into safer U.S. Treasuries and dollars, rather than keeping it in higher-risk assets like cryptocurrencies. Some institutions may even short BTC and ETH to hedge against risks.
Moreover, since the cryptocurrency market itself is not very liquid, once there is a slightly larger selling pressure, it can easily amplify the declines, triggering a chain of liquidations. It is recommended that those looking to go long in the medium to long term should be cautious before opening positions ahead of the Federal Reserve's interest rate meeting on September 18.
Technical and fundamental factors working together
Before the non-farm data was released, institutions attempted to push BTC and ETH prices higher, but they were unable to break through key resistance levels. Half an hour after the data was released, they instead fell below important support levels. These levels were originally dividing lines for bulls and bears; once broken, they trigger a large number of stop-loss orders and leveraged liquidations, accelerating the decline.
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