Ethereum faces potential breakdown as hawkish Fed stance pressures crypto markets

FUNDAMENTAL ANALYSIS

Ethereum declined on Friday following a hawkish address by Fed Chair Warsh at the Jackson Hole Symposium.

The crucial remark from Warsh was, "I would be hard pressed to describe broad financial conditions as restrictive." Markets took this as a signal that he is pushing back against the recent loosening of financial conditions, prompting a tightening in response.

As previously noted, Ethereum together with other cryptocurrencies experienced a strong rally driven by "debasement" concerns after the US Treasury buyback announcement aimed at suppressing long-term yields.

Warsh's comments triggered a turnaround in "debasement" trades, with gold and the US dollar reverting to their levels before the Treasury announcement. Ethereum, however, demonstrated relative strength by merely extending its consolidation phase near monthly highs.

Technical analysis may offer more clarity moving forward, as a breakout from the current 2,350-2,550 range could establish a more enduring trend.

Warsh also emphasized that the Fed is currently concentrating solely on inflation and noted that progress has been sluggish. Therefore, only a soft US CPI report might reduce probabilities below 50% (currently at 67%) and prevent the Fed from hiking at the upcoming meeting.

If those probabilities remain at or above 50%, the Fed might have no choice but to hike, as inaction would send a dovish signal and once again ease financial conditions.

For Ethereum, easing financial conditions and a dovish repricing of interest rate expectations would serve as positive catalysts and sustain upward momentum. In contrast, a hot CPI report or hawkish developments should pressure the cryptocurrency and lead to selloffs.

ETHEREUM TECHNICAL ANALYSIS – DAILY TIMEFRAME

On the daily chart, Ethereum continues to consolidate around the key 2,450 swing high, though with a more bearish tone. Sellers are likely to keep intervening near these levels with a defined risk above resistance, positioning for a decline toward the upward trendline. Buyers, conversely, are looking for a break above the monthly high to boost bullish positions targeting the 3,400 level.

ETHEREUM TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME

On the 4 hour chart, the rangebound trading between the 2,350 support and 2,550 resistance is more evident. Market participants are expected to continue playing the range, buying at support and selling at resistance, until a breakout occurs on either side.

ETHEREUM TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME

On the 1 hour chart, little additional insight is provided, as a breakout of the range is more significant than the choppy action within it. However, a minor downward trendline could act as resistance for sellers looking for a break below support with a better risk-reward setup. Buyers, on the other hand, are seeking a break above the trendline to fuel a potential rally toward the 2,550 resistance.

UPCOMING CATALYSTS

Later today, the US ADP report is due. Tomorrow brings Fed’s Waller, US Jobless Claims, and the US ISM Services PMI. On Friday, the week concludes with the US NFP report.