Ethereum risks a breakdown as hawkish Fed expectations weigh on cryptocurrencies

<p class="MsoNormal" style="margin: 0 0 11px; line-height: 106%; font-family: Aptos, sans-serif; font-size: 15px;">FUNDAMENTAL ANALYSIS</p><p class="MsoNormal" style="margin: 0 0 11px; line-height: 106%; font-family: Aptos, sans-serif; font-size: 15px;"> </p><p class="MsoNormal" style="margin: 0 0 11px; line-height: 106%; font-family: Aptos, sans-serif; font-size: 15px;">Ethereum dropped on Friday after <a href="https://investinglive.com/central-banks/fed-s-warsh-numbers-on-price-stability-are-more-concerning/" rel="follow" style="color: rgba(70, 120, 134, 1); text-decoration: underline;">Fed Chair Warsh delivered a hawkish speech</a> at the Jackson Hole Symposium. </p><p class="MsoNormal" style="margin: 0 0 11px; line-height: 106%; font-family: Aptos, sans-serif; font-size: 15px;">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.</p><p class="MsoNormal" style="margin: 0 0 11px; line-height: 106%; font-family: Aptos, sans-serif; font-size: 15px;">As you recall, Ethereum and other cryptocurrencies, rallied strongly on “debasement” fears following the <a href="https://investinglive.com/news/us-treasury-is-increasing-the-size-of-liquidity-support-buyback-operations-for-longer-dated-securities/" rel="follow" style="color: rgba(70, 120, 134, 1); text-decoration: underline;">US Treasury buyback announcement</a> to suppress long-term yields. </p><p class="MsoNormal" style="margin: 0 0 11px; line-height: 106%; font-family: Aptos, sans-serif; font-size: 15px;">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. </p><p class="MsoNormal" style="margin: 0 0 11px; line-height: 106%; font-family: Aptos, sans-serif; font-size: 15px;">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. </p><p class="MsoNormal" style="margin: 0 0 11px; line-height: 106%; font-family: Aptos, sans-serif; font-size: 15px;">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. </p><p class="MsoNormal" style="margin: 0 0 11px; line-height: 106%; font-family: Aptos, sans-serif; font-size: 15px;">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. </p><p class="MsoNormal" style="margin: 0 0 11px; line-height: 106%; font-family: Aptos, sans-serif; font-size: 15px;">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. </p><p> </p><p class="MsoNormal" style="margin: 0 0 11px; line-height: 106%; font-family: Aptos, sans-serif; font-size: 15px;">ETHEREUM TECHNICAL ANALYSIS – DAILY TIMEFRAME</p><p></p><p>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. </p><p class="MsoNormal" style="margin: 0 0 11px; line-height: 106%; font-family: Aptos, sans-serif; font-size: 15px;">ETHEREUM TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME</p><p></p><p>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. </p><p class="MsoNormal" style="margin: 0 0 11px; line-height: 106%; font-family: Aptos, sans-serif; font-size: 15px;">ETHEREUM TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME</p><p></p><p>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.</p><p class="MsoNormal" style="margin: 0 0 11px; line-height: 106%; font-family: Aptos, sans-serif; font-size: 15px;">UPCOMING CATALYSTS</p><p class="MsoNormal" style="margin: 0 0 8px; font-family: Aptos, sans-serif; line-height: 110%; font-size: 15px;"><a href="https://investinglive.com/EconomicCalendar" rel="follow">Today</a>, 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.</p> This article was written by Giuseppe Dellamotta at investinglive.com.