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Ethereum is in an “oversold” zone, for the first time since November 2018.

Hania
Ethereum is in an "oversold" zone, for the first time since November 2018.

After its RSI went oversold the last time, Ether’s price rebounded by approximately 400%. Will things be different this time?

As per its weekly Relative Strength Index (RSI), Ethereum’s native token Ether (ETH) entered “oversold” territory on June 12 for the very first time since November 2018.

ETH is now on the watch for an oversold bounce.

When the RSI reading falls below 30, traditional analysts consider an asset to be oversold.

They also observe the fall as an opportunity to buy the dip, expecting that an oversold signal will indicate a trend reversal.

The last oversold reading for Ether happened in the week ending Nov. 12, 2018, and was followed by a 400 percent price rebound, as illustrated below.

ETH/USD weekly price chart presenting oversold RSI. Source: TradingView

The last RSI’s dip below 30 increases the probability that Ether will see a similar—if not an equally sharp—upside retracement in the future, even though past records are not a determinant of subsequent trends.

Imagine that Ethereum records an oversold bounce.

The next hurdle for the ETH/USD pair would be to claim back its support from the 200-week exponential moving average (200-week EMA; the blue wave) near $1,620.

If it does, bulls may target a prolonged upward movement toward the 50-week EMA (the red wave) above $2,700, which would represent a price increase of about 100% from the price on June 12.

If not, Ether might start to decline again, with $1,120 as the next objective, which further appears to be the token’s 0.782 Fib line, as can be seen in the chart below.

ETH/USD weekly price chart presenting Fibonacci support and resistance levels. Source: TradingView

Macro obstacles and a $650 Ether price objective 

A flurry of bearish obstacles, ranging from continuously increasing inflation to a classic technical indicator with a falling tilt, appear to be opposing the RSI-based bullish outlook.

In brief, Ether’s price has dropped by more than 20% in the last six days, with the majority of the losses occurring after June 10th, when the US Labor Department revealed that May inflation hit 8.6%, the highest level since December 1981.

Investors are worried that a rising consumer price index (CPI) may push the Federal Reserve to raise interest rates more aggressively while shrinking its $9 trillion balance sheet.

Stocks, Bitcoin (BTC), and Ethereum (ETH) all will suffer the consequences of this reduced interest for riskier assets.

ETH/USD versus SPX and BTC/USD daily price chart. Source: TradingView

The recent ETH drop, according to independent expert Vince Prince, might last until the value falls $650.

A massive head and shoulders — a classic bearish reversal pattern with an 85 percent success record in hitting its profit goal, according to Samurai Trading Academy — lies at the heart of his downside target.

Furthermore, Checkmate, Glassnode’s primary on-chain analyst, warned of potential decentralized finance (DeFi) disaster that could drive Ether’s price further lower in 2022.

On June 11, the market capitalization ratio between Ethereum and the top three stablecoins increased to 80%, according to the analyst.

As “most individuals borrow stablecoins” by pledging ETH as collateral, the risk of the Ethereum network depreciating in value relative to the top dollar-pegged tokens would raise the debt’s worth above the collateral.

Checkmate made the following observation:
“Not all stablecoins are borrowed, and not all stablecoins are on Ethereum.
However, the risk of liquidations [is] a lot higher now than it was three months ago.”

The author’s thoughts and opinions are completely his or her own and do not necessarily reflect those of Cryptomufasa.com. Every investment and trading decision entails risk, so do your research before making a decision.

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