Source: PaxForex Premium Analytics Portal, Fundamental Insight
Cryptocurrencies have enjoyed a bullish start to 2023, but February could signal the end of the bear market rally. One of the primary downside catalysts for cryptocurrencies in 2022 was high inflation causing central banks to increase borrowing costs. It sparked a US Dollar rally, which added to selling pressure on cryptocurrencies. The collapse of FTX and several other high-profile market participants in the cryptocurrency sector initiated the exodus of capital, but the US Dollar played a role many have ignored. With inflation surprising to the upside in January, following several months of weaker-than-expected readings, central banks and hawkish monetary policy have re-emerged as a threat to higher cryptocurrency prices, where Ethereum looks the most vulnerable among the Top 5 cryptocurrency pairs by market capitalization.
After the Merge, when Ethereum switched from proof-of-work to proof-of-stake failed to provide the upside many hoped for, most bulls now expect EIP-4884, which led to Proto-danksharding, to deliver the next upside catalyst. Proto-danksharding refers to horizontal scaling, breaking down the Ethereum network into smaller portions known as shards. In theory, it will allow Ethereum to process more transactions at a faster pace. It should also reduce the computational power necessary to handle smart contracts on the Ethereum blockchain, lowering its carbon footprint.
While Proto-danksharding sounds promising, it may take time to show if and how it works in practice. Ethereum requires an immediate upside catalyst to complete and sustain a breakout above its horizontal resistance area. The short-to-medium term outlook remains bearish, aided by an ongoing regulatory cryptocurrency clampdown in the US, which impact remains unknown. The SEC chose to treat Ethereum differently than Ripple, but the unknown outcome adds downside pressure on Ethereum.
The forecast for the ETH/USD turned bearish after this cryptocurrency pair advanced into its horizontal resistance area. It rejected price action, followed by a lower low, but the bounce back created a higher high. It suggests volatility could remain high with the ascending Kijun-sen on the cusp of a bullish crossover above the flat Tenkan-sen. The flattening Ichimoku Kinko Hyo Cloud hints at a temporary pause in the uptrend. Traders should also monitor the CCI, which recorded a lower high in extreme overbought territory, before completing a breakdown. Can bears regain full control over price action and force the ETH/USD into its horizontal support area? Subscribe to the PaxForex Daily Fundamental Analysis and earn over 5,000 pips per month.
Should price action for the ETH/USD remain inside the or breakdown below the 1,625 to 1,715 zone, PaxForex recommends the following trade set-up:
- Timeframe: D1
- Recommendation: Short Position
- Entry Level: Short Position @ 1,580
- Take Profit Zone: 1.460 – 1,520
- Stop Loss Level: 1,750
Should price action for the ETH/USD breakout above 1,715, PaxForex recommends the following trade set-up:
- Timeframe: D1
- Recommendation: Long Position
- Entry Level: Long Position @ 1,750
- Take Profit Zone: 1,815 – 1,875
- Stop Loss Level: 1,715
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