Ethereum’s native token Ether (ETH), reached a record high of $4,867 in November. However, it plunged by almost 20% one month later due to rising profit-taking sentiment.
Currently, the ETH price is holding $4,000 as a support level. There are multiple technical and fundamental indicators that indicate further selling.
ETH price rising wedge
First, Ether seems to have broken out of the “rising wedge”, a bearish reversal trend that occurs when the price moves upward within a range defined in two ascending but converging trendlines.
Simply put, the Ether price is nearing the Wedge’s peak point and could break below the pattern’s lower trendsline. This move many technical chartists consider a warning sign for future losses. Their profit target is at the length of the maximum wedge height measured from the breakout point.
Weekly price chart for Ethereum/USD featuring Rising Wedge. Source: TradingView
Ether’s downside target for rising wedge is now near $2,800. This is also close to its 50-week exponential moving mean (50-week EMA).
Despite its ability to withstand the huge selling pressures experienced elsewhere in cryptocurrency markets in recent weeks, the bearish outlook on the Ether market seems to be despite its ability.
Bitcoin (BTC), which is the largest crypto market cap by market capital, dropped by 30% just a month after it reached its record high of $69,000 in November. This was much more than Ether’s drop in that time period. Many analysts called Ether a hedge against the Bitcoin price drop, even though ETH/BTC rose to its highest levels in over three years.
It does not change the fact that Ether’s recent price rally coincides with a decrease in its weekly relative strength indicator (RSI), which signals a growing divergence of momentum and price.
Weekly price chart for ETH/USD showing divergence between price & RSI. Source: TradingView
The RSI oscillator also fell below 70 in the recent pullback in ETH’s price, a classic selling indicator.
Fed “dot plot”.
There are more negative cues about Ether ahead of the Federal Reserve’s two-day policy meeting that begins Dec. 14, when the central bank will discuss the speed at which it might need to reduce its $120 billion per month asset buying program in order to have enough flexibility for possible rate increases next year.
The Fed announced last month that it would reduce its bond-buying pace to $15 billion per month. This suggests that the stimulus will eventually end by June 2022. However, recent market reports indicating a tightening job market and rising inflationary pressures led Fed officials to announce that tapering would be stopped “perhaps a couple of months earlier.”
Next week, 20 CenBanks will meet as inflation continues to rise. Final decisions for 2021 are due at Fed and ECB. CenBank balances have been rising in line with ATHs but there may be divergence. https://t.co/GgOLGCNbjR pic.twitter.com/mrrhwUVcet
— Holger Zschaepitz (@Schuldensuehner) December 12, 2021
Market expectations also changed. A Financial Times survey of 48 economists found that most expect the stimulus to be over by March 2022. The majority supported a rate increase in the second quarter.
The ETH price has risen by more than 3,330% during the period of loose monetary policy after March 2020. According to ana, tapering is becoming more likely, which could put a halt to the current rally and possibly the bull market in general.
Because they will recognize that we are in a bubble, I expect the Fed to take a very aggressive approach. Then we get our multi-year bear market.
— K A L E O (@CryptoKaleo) December 10, 2021
The markets expect that the Fed will update its policy statements and summary of economic projections (SEP), this week. In doing so, more central bank officials would adjust the “dot plot” to favor an earlier-than-anticipated rate hike against rising inflation.
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