Before Federal Reserve Chairman Jerome Powell announced a 25 basis point (bps) interest rate cut, Ethereum (ETH) holders were optimistic that the event would fuel a rally towards $4,500.
However, the cryptocurrency went in the opposite direction, experiencing a 4.50% drop shortly afterward. This move dampened hopes of a significant breakout, raising questions about what might be next for Ethereum.
Ethereum changes its reaction compared to the last fee cut
A few months ago, the Fed cut interest rates by 50 bps. This development fueled a notable rally in the prices of major cryptocurrencies, including Ethereum. At the time, sentiment was anticipating a similar cut before the end of the year. However, this did not materialize.
After yesterday's decision, the price of ETH fell from $3,890 to $3,624. Although the cryptocurrency has recovered slightly, several on-chain indicators reveal that the attempted recovery could be a false alarm.
One of the indicators that suggests this is the Daily Active Addresses (DAA) price divergence. The DAA price divergence checks whether user engagement is growing along with the price. When it is positive, it means that engagement with the cryptocurrency has increased and is bullish for the price.
Ethereum DAA Price Divergence. Source: Santiment
Indicators suggest possible drop in Ethereum price
On the other hand, a negative rating indicates less engagement, which is bearish. According to Santiment, Ethereum’s DAA price divergence has dropped to -98.28%, indicating less user engagement. If this trend continues, ETH’s price could face an even steeper decline.
In addition to the above indicator, the Coinbase Premium Gap is another indicator that supports further decline. This indicator measures the price difference between the ETH/USD pair on Coinbase and the same pair on Binance.
When there is a high price premium on Coinbase relative to Binance, it signals notable buying activity among US-based investors. This buying pressure could come from increased demand in the region and favor a price increase.
Ethereum Coinbase Premium Gap. Source: CryptoQuant
On the other hand, when the price on Coinbase lags behind Binance, it could suggest a relative cooling of demand in the US market or stronger selling pressure from institutional or retail investors.
The chart above shows that the premium gap has dropped to -1.96, indicating significant selling pressure for ETH following the Fed rate cut.
Price Prediction: Is $4,500 Still Possible?
In addition to ETH’s reaction to the Fed rate cut, it experienced a drop due to the formation of a head and shoulders pattern on the 4-hour chart. This pattern is a classic technical analysis formation that signals a possible trend reversal from bullish to bearish.
The pattern features a price rally (left shoulder), followed by a peak (head) and then a decline (right shoulder). When the price breaks below the neckline after forming the right shoulder, it signals a bearish trend reversal.
However, the reliability of the pattern depends on the trading volume. As seen below, the volume around ETH has decreased, and the price has fallen below the neckline.
Ethereum 4-Hour Analysis. Source: TradingView
If this remains the same, ETH could drop to $3,501. However, if volume increases along with buying pressure, this prediction may not come true. Instead, its price could rise to $4,109 and eventually towards $4,500.
The article Ethereum (ETH) Loses Steam: Is the Uptrend Over? appeared first on BeInCrypto.
