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.

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