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 bounce from oversold

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Traditional analysts believe that the asset is oversold after the RSI value falls below 30. In addition, they also view the decline as a “buy on the dip” opportunity, believing that an oversold signal will lead to a trend reversal.

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The previous Ethereum oversold value appeared in the week ending November 12, 2018, which preceded the roughly 400% price increase, as shown below.

Weekly ETH/USD price chart with RSI oversold indicator. Source: Trading View
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While past performance is not an indication 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.

Suppose ETH registers an oversold bounce. The immediate challenge for the ETH/USD pair would then be to rebuild its 200-week exponential moving average (200-week EMA; blue wave) around $1,620 as support.

If this happens, bulls can expect a prolonged upside move towards the 50-week EMA (red wave) above $2,700, almost 100% up from today’s price.

If not, Ethereum could resume the downtrend and the next target would be $1,120, a level that coincides with the 0.782 token Fibonacci line, as shown in the chart below.

Weekly ETH/USD price chart with Fibonacci support and resistance levels. Source: Trading View

Macro obstacles and $650 Ether price target

The bullish outlook based on the RSI comes amid a flurry of bearish headwinds ranging from consistently higher inflation to a classic technical indicator with a downward bias.

In particular, the price of Ether has declined by more than 20% in the past six days, with the biggest loss occurring after June 10, when the US Department of Labor reported that inflation reached 8.6% in May, the highest level since December 1981.

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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, hurting equities, bitcoin (BTC) and ETH.

Daily price chart of ETH/USD versus SPX and BTC/USD. Source: Trading View

Independent analyst Vince Prince fears that ETH’s latest drop could last until the price reaches $650. 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. Samurai Trade Academy.

Meanwhile, a leading network analyst at Glassnode, who goes by the pseudonym “Checkmate”, pointed to a potential DeFi disaster that could lead to a further drop in the price of Ether in 2022.

The analyst noted that the ratio of 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 potential for the Ethereum network to become less valuable than dollar-pegged tokens would make the value of the debt higher than the collateral itself.

Mat noted:

“There is a caveat, since not all stablecoins are borrowed, and also not all are in Ethereum. However, the risk of liquidations [is] much higher than three months ago.

The views and opinions expressed here are solely those of the author and do not necessarily reflect those of Every investment and trading step involves risk, you should do your own research when making a decision.