According to Ethereum’s weekly relative strength index (RSI), Ether (ETH), the native token of Ethereum entered “oversold” territory on June 12, 2018, for the first time since November 2018.
This is the last time $ETH was oversold on the weekly (hasn’t been confirmed yet). I didn’t have any followers but macro bottom ticked. You can push lower on weekly rsi than you are trying to catch a bottom. https://t.co/kLCynTKTcS
— June 12, 2022, The Wolf Of All Streets (@scottmelker).
Oversold bounce for ETH eyes
Traditional analysts believe that an asset is excessively sold if its RSI reading falls below 30. They also consider the drop to be an opportunity to “buy and hold the dip,” believing that an oversold signal could lead to a trend reverse.
The previous Ether oversold reading was in the week ending Nov. 12, 2018. This preceded a roughly 400% price rise, as shown below.
ETH/USD Weekly Price Chart with Oversold RSI Source: TradingView
Although past performance is not indicative of future trends but the latest RSI move below 30 suggests that Ether could be experiencing a similar, if not more sharp, upward trend in the future.
Let’s say that ETH experiences an oversold bounce. The immediate challenge for the ETH/USD pair would be to reclaim the 200-week exponential moving mean (200-week EMA, the blue wave) at $1,620.
Bulls may see a prolonged upside move to the 50-week EMA above $2,700, almost 100% higher than today’s price.
Ether may resume its downtrend if it does not. The next target is $1,120, which coincides with the token’s 0.77 Fib line (see chart below).
Weekly price chart for Ethereum/USD with Fibonacci support levels and resistance levels. Source: TradingView
Macro headwinds, $650 Ether price target
The RSI-based bullish outlook is compared to a flurry bearish headwinds. These include persistently higher inflation and a classic technical indicator with a down bias.
Ether’s prices fell by more than 20% over the past six days. The largest losses occurred after June 10, when the U.S. Labour Department reported Ether’s inflation reaching 8.6% in May. This is the highest level since December 1981.
Related: While the total crypto market cap has fallen below $1.2T, data shows that traders are more inclined to sell.
Investors were more concerned that the higher consumer price index (CPI), would lead to the Federal Reserve raising interest rates aggressively and reducing its $9 trillion balance sheet. This slowed investors’ appetite for riskier assets such as stocks, Bitcoin (BTC), and ETH.
Daily price chart for ETH/USD and SPX versus BTC/USD Source: TradingView
Independent analyst Vince Prince is concerned that the latest ETH price decline could continue until it reaches $650. According to Samurai Trading Academy, his main downside target is a huge “head and shoulders”, a classic bearish pattern that has an 85% success rate in reaching its profit target.
The huge head-and shoulder formation for #Ethereum that was forecasted earlier has been confirmed……$ETH is now heading towards $650 USDT! pic.twitter.com/R2KaqiorEd
— Vince Prince (@Vince_Prince_) June 12, 2022
Glassnode’s on-chain lead analyst, “Checkmate,” warned of a possible DeFi catastrophe that could further plunge Ether’s value into 2022.
According to the analyst, the ratio of Ethereum’s market capitalization and that of the top three stablecoins grew to 80% in June 11.
Ratio now stands at 80% Market Cap:#Ethereum = $181.58B Top3 Stablecoins = $14.28B TVL In DeFi = $101.67B$ETH @ $1215. This equals Ethereum and Top3 stablecoin market caps. The principle risk here is levered $ETH collateral in DeFi loans getting liquidated in a cascade https://t.co/26u0vXnMMY pic.twitter.com/q555clRaap
— _Checkmate (@_Checkmatey_) June 12, 2022
The potential for the Ethereum network to become less valuable than top-dollar-pegged tokens, and “most people borrow stabilitycoins” using ETH as collateral, would increase the debt’s worth more than the collateral.
There is nuance, as not all stablecoins can be borrowed and not all are ON Ethereum. However, liquidations are now a much greater risk than they were three months ago. You should do your research before making any investment or trading decision.