Ethereum price enters “oversold” zone for the first time since November 2018

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

Oversold ETH eyes bounce

Traditional analysts consider an asset to be oversold after its RSI falls below 30. Furthermore, they also see the decline as an opportunity to “buy the dip”, believing that an oversold signal would lead to a trend reversal.

Ether’s previous oversold reading appeared during the week ending November 12, 2018, which preceded a price rally of around 400%, as shown below.

ETH/USD weekly price chart with oversold RSI. Source: Trading View

While past performance is not an indicator of future trends, the RSI’s latest move below 30 raises the possibility that Ether will experience a similar, if not equally sharp, upward retracement in the future.

Suppose ETH records an oversold bounce. Then, the immediate challenge for ETH/USD would be to reclaim its 200-week exponential moving average (200-week EMA; the blue wave) near $1,620 as support.

If so, bulls could be looking at an extended upside move towards the 50-week EMA (the red wave) above $2,700, up almost 100% from today’s price. .

Otherwise, Ether could resume its downtrend, with $1,120 serving as the next target, a level coinciding with the token’s 0.782 Fib line, as shown in the chart below.

ETH/USD weekly price chart showing Fibonacci support and resistance levels. Source: Trading View

Macro headwinds and $650 Ether price target

The bullish outlook based on the RSI appears against a wave of bearish headwinds, ranging from ever-higher inflation to a classic technical indicator with a downward bias.

In detail, Ether’s price is down more than 20% in the past six days, with most of the losses occurring after June 10, when the US Department of Labor reported inflation hit 8, 6% in May, the highest since December 1981.

Related: Total Crypto Market Cap Drops Below $1.2 Billion, But Data Shows Traders Less Inclined to Sell

The rise in the consumer price index (CPI) heightened investor fears that it would force the Federal Reserve to raise interest rates more aggressively while shrinking its balance sheet by $9 trillion. This dampened the appetite for riskier assets, hurting stocks, Bitcoin (BTC) and ETH.

ETH/USD daily price chart against SPX and BTC/USD. Source: Trading View

Independent analyst Vince Prince fears that ETH’s latest decline could extend until the price hits $650. At the heart of its downside target is a huge “head and shoulders” – a classic bearish reversal pattern with an 85% success rate in hitting its profit target, according to Samurai Trading Academy.

Meanwhile, Glassnode’s senior on-chain analyst, known by the pseudonym “Checkmate”, has highlighted a potential DeFi catastrophe that could send Ether’s price crashing further into 2022.

The analyst noted that the ratio of Ethereum’s market capitalization to that of the three major stablecoins rose to 80% on June 11.

Since “most people borrow stablecoins” by providing ETH as collateral, the potential for the Ethereum network to become less valuable than major dollar-pegged tokens would make the value of the debt greater than the collateral itself.

Checkmate Noted:

“There is a nuance because not all stablecoins are borrowed, nor are all ON ethereum. But nonetheless, the risk of liquidations [is] much higher than three months ago.”

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