Ethereum’s native token Ether (ETH) entered its “oversold” territory this June 12, for the first time since November 2018, according to its weekly relative strength index (RSI).
This is the last time $ ETH was oversold on the weekly magazine (have not confirmed here yet).
I had no followers, but the macro bottom ticked off.
Note that you can push far lower on the weekly rsi, without trying to catch a bottom. https://t.co/kLCynTKTcS
– The Wolf Of All Streets (@scottmelker) June 12, 2022
ETH eyes oversold bounce
Traditional analysts consider an asset to be excessively sold after the RSI reading falls below 30. Furthermore, they also see the fall as an opportunity to “buy dip”, and believe that an oversold signal will lead to a trend reversal.
Ether’s previously oversold reading appeared in the week ending November 12, 2018, which preceded a price increase of approximately 400%, as shown below.
While past performance is not an indicator of future trends, the recent RSI move below 30 increases the possibility that Ether will undergo a similar – if not as sharp – upside traction in the future.
Assume that ETH logs an oversold return. Then the ETH / USD pair’s immediate challenge will be to regain its 200-week exponential moving average (200-week EMA; the blue wave) close to $ 1,620 in support.
If it does, bulls could see an extended upward movement toward the 50-week EMA (the red wave) above $ 2700, up almost 100% from today’s price.
If not, Ether could resume its downward trend, with $ 1,120 as the next target, a level that coincides with the token’s 0.782 Fib line, as shown in the chart below.
Macro headwind and an Ether price target of $ 650
The RSI-based bullish outlook is against a surge of bearish headwinds, ranging from persistently higher inflation to a classic technical indicator with a downward skew.
In detail, Ether’s price fell by more than 20% in the last six days, with most losses after June 10, when the US Department of Labor reported that inflation reached 8.6% in May, the highest since December 1981.
Related: The total market value of crypto falls below $ 1.2T, but data shows that traders are less likely to sell
The higher consumer price index (CPI) strengthened fears among investors that it would force the Federal Reserve to raise interest rates more aggressively while cutting the $ 9 trillion balance sheet. It curbed appetite for riskier assets, harmful stocks, Bitcoin (BTC) and ETH.
Independent analyst Vince Prince fears the recent ETH decline could extend to the price reaching $ 650. At the heart of his downside goal is a massive “head and shoulders” – a classic bearish reversal pattern with a 85% success rate in reaching the profit target, according to the Samurai Trading Academy.
The massive head-and-shoulder formation previously predicted #Ethereum is now fully confirmed …
– Vince Prince (@Vince_Prince_) June 12, 2022
Meanwhile, Glassnode’s leading chain analyst, known by the pseudonym “Checkmate”, highlighted a potential DeFi disaster that could crash Ether’s price further into 2022.
The analyst noted that the ratio between Ethereum and the top three stablecoins’ market value grew to 80% on June 11.
The ratio is now 80%
– _Checkɱate ⚡ (@_Checkmatey_) June 12, 2022
Since “most people borrow stable coins” by providing ETH as collateral, the potential for the Ethereum network to be less valuable than the top dollar-denominated tokens will make the value of the debt higher than the collateral itself.
“There are nuances since not all stack coins are borrowed, nor are all ON ethereum. But still, the risk of liquidation is [is] much higher than it was three months ago. “
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