The price of Ether is up almost 400% since its RSI was last oversold. Will it be different this time?
Ethereum’s native token (ETH) entered the oversold zone on June 12 for the first time since November 2018, according to the weekly Relative Strength Index (RSI).
ETH sees an oversold rally
Traditional analysts consider an asset to be oversold once the RSI value drops below 30. In addition, they also view a decline as an opportunity to buy a dip as they believe that an oversold signal will lead to a trend reversal.
The previous Ethereum oversold value appeared in the week ending November 12, 2018, which preceded the price rally by approximately 400% as shown below.
ETH/USD weekly chart showing RSI oversold. Source: Trading View
While past performance is not an indicator of future trends, the recent RSI movement below 30 raises the possibility that Ethereum will undergo a similar, if not as sharp, pullback to the upside in the future.
Assume that ETH captures an oversold bounce. Then the immediate call for the ETH/USD pair would be a repeat of its 200-week exponential moving average (200-week EMA; blue wave) around $1,620 as support.
If this is the case, bulls can expect an extended move higher towards the 50-week EMA (red wave) above $2,700, almost 100% up from the June 12 price.
If not, Ethereum could resume the downtrend and the next target would be $1,120, a level that aligns with the token’s 0.782 Fibonacci line, as shown in the chart below.
Weekly ETH/USD price chart with Fibonacci support and resistance levels. Source: Trading View
Macro headwinds and $650 Ether price target
The bullish outlook based on the RSI comes amid bearish headwinds ranging from consistently higher inflation to a classic downside technical indicator.
In particular, the price of Ether has fallen by more than 20% in the past six days, with most of the losses occurring on June 10, when the US Department of Labor reported that inflation had reached 8.6% in May, the highest level since December 1981. .
Related: Total cryptocurrency market capitalization has fallen below $1.2 trillion, but data shows traders are less likely to sell
A higher consumer price index (CPI) has fueled investor fears that it will force the Federal Reserve to raise interest rates more aggressively, cutting its balance sheet by $9 trillion. This dampened appetite for riskier assets and hurt equities, bitcoin (BTC) and ETH.
Daily chart of ETH/USD vs SPX and BTC/USD. Source: Trading View
Independent analyst Vince Prince is concerned that the recent drop in ETH could continue until the price reaches $650. According to the Samurai Trading Academy, its bottom target is based on a massive head and shoulders, a classic bearish reversal pattern with an 85% chance of hitting a profit target.
Meanwhile, a leading network analyst at Glassnode, who goes by the pseudonym Checkmate, has pointed to a potential disaster in the decentralized finance (DeFi) space that could lead to a drop in the price of Ether in 2022.
The analyst noted that the ratio between the market capitalization of Ethereum and the three largest stablecoins rose to 80% on June 11.
Since “most people borrow stablecoins” by providing ETH as collateral, the likelihood of the Ethereum network becoming less valuable than dollar-pegged tokens would make the value of the debt higher than the collateral itself.
“There are nuances, since not all stablecoins are borrowed and not all are in Ethereum. But the risk of liquidation is still much higher than it was three months ago.”