Ethereum risks a breakdown as hawkish Fed expectations weigh on cryptocurrencies
FUNDAMENTAL
ANALYSIS
Ethereum dropped
on Friday after Fed Chair Warsh delivered a hawkish speech at the Jackson Hole Symposium.
The
key passage was him saying “I would be hard pressed to describe broad
financial conditions as restrictive". The market interpreted that as him
leaning against the recent easing in financial conditions and, therefore,
retightened them.
As you
recall, Ethereum and other cryptocurrencies, rallied strongly on “debasement”
fears following the US Treasury buyback announcement to suppress long-term yields.
Warsh’s speech has
triggered a reversal in the “debasement" trades, with gold and the US
dollar returning to pre-US Treasury announcement levels. Ethereum, on the other
hand, showed notable resilience, as it just extended the consolidation process
near monthly highs.
The technicals
might be more helpful going forward, as a breakout on either side of the current
2,350-2,550 range could lead to a more sustained trend.
Warsh has also reiterated that
the Fed is focused solely on inflation now and mentioned that the progress has
been slow. For this reason, I think only a soft US
CPI report could bring the probabilities below 50% (currently at 67%) and deter
the Fed from hiking at the upcoming meeting.
If the
probabilities stay at or above 50%, the Fed might be forced to hike regardless
because failure to do so would send a dovish message and ease financial
conditions again.
For Ethereum,
easing in financial conditions and dovish repricing in interest rate
expectations would be positive drivers and extend the upward momentum.
Conversely, a hot CPI report or hawkish surprises should weigh on the
cryptocurrency and trigger selloffs.
ETHEREUM TECHNICAL
ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can
see that Ethereum is still consolidating around the major 2,450 swing high, but
with a more bearish picture. The sellers will likely continue to step in around
these levels with a defined risk above the resistance to position for a drop
into the upward trendline. The buyers, on the other hand, will want to see the
price breaking above the monthly high to increase the bullish bets into the
3,400 level next.
ETHEREUM TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we can
see more clearly the rangebound price action between the 2,350 support and the 2,550
resistance. The market participants will likely continue to play the range by
buying at support and selling at resistance until we get a breakout on either side.
ETHEREUM TECHNICAL
ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, there’s
not much we add here as a breakout of the range would be more important than
the choppy price action inside it. Nevertheless, we have a minor downward trendline
that could act as resistance for the sellers to position for a break below the
support with a better risk to reward setup. The buyers, on the other hand, will
look for a break above the trendline to extend a potential rally into the 2,550
resistance.
UPCOMING CATALYSTS
Today, we get the
US ADP report. Tomorrow, we have Fed’s Waller, the US Jobless Claims and the US
ISM Services PMI. On Friday, we conclude the week with the US NFP report.
This article was written by Giuseppe Dellamotta at investinglive.com.