Ethereum has experienced significant downward pressure recently following a strong rally that saw its price approach the $5,000 mark. While the broader uptrend remains intact over the long term, a recent rejection and sharp pullback have raised concerns about a potential deeper market correction. This change in price action has prompted traders to monitor crucial support levels closely, which will help determine whether the current movement is merely a dip or the beginning of a more substantial trend shift.
Technical Analysis
Daily Chart Trends
On the daily timeframe, Ethereum was navigating a well-defined ascending channel starting from April, marked by a series of higher highs and higher lows. However, the recent decline broke through the mid-channel trend line, pushing the asset to hover just above the channel’s lower boundary.
The $3,900 to $4,000 range is currently identified as a strong confluence zone. This area is backed by a horizontal demand zone, the 100-day moving average, and the channel’s lower boundary. If Ethereum’s price breaches this level, the next layer of support rests around $3,400, followed by the 200-day moving average situated near $2,900. The Relative Strength Index (RSI) has dropped to 34, indicating an increase in bearish momentum, yet it is also approaching oversold territory, which could set the stage for a potential bounce back.
4-Hour Chart Analysis
Switching to the 4-hour timeframe, the short-term perspective appears distinctly bearish. Ethereum broke below a significant support level at $4,200 and is currently on a parabolic downward correction path. Momentum indicators indicate weak activity, with the RSI sitting near 24, which is considered deeply oversold. This situation could pave the way for an imminent relief bounce.
However, unless Ethereum can reclaim the $4,200 to $4,300 area and establish a new local higher high, the prevailing bias remains negative. Market participants are now focusing on the $3,800 to $4,000 zone, a pivotal level that could either instigate a strong rebound or open the floodgates for a further decline towards $3,500 or lower.
Sentiment Analysis
Open Interest Insights
Ethereum’s open interest has observed a notable decline as a result of the recent price drop, reflecting the liquidation of numerous leveraged long positions during this corrective phase. Despite this downturn, open interest levels remain significantly elevated when compared to earlier in the year, which suggests that speculative activity is still very much alive in the market.
The sharp reduction in open interest indicates a lowered risk for a major liquidation cascade, but the overall elevated baseline points to traders continuing to position themselves for volatility. Should Ethereum’s price stabilize around its critical support levels and market sentiment begin to recover, there exists potential for open interest to rise once again alongside a bounce in price.
Market participants are advised to proceed with caution, keeping a close eye on these key technical levels as Ethereum navigates this volatile phase.
