Ethereum Price Ripe for Another 15% Drop Ahead of US Inflation Data

Ethereum Price Ripe for Another 15% Drop Ahead of US Inflation Data

Ethereum price retreated sharply during the Asian session on Tuesday. The coin dropped by more than 4% and reached a low of $2,442, which was the lowest level on May 31. It is about 44% below this year’s high.

Ethereum drops

Ethereum is a major blockchain project that is mostly used in the development of decentralized applications (dApps). Today, the network is best known for the role it plays in the Decentralized Finance (DeFi) industry. 

According to DeFi Pulse, the industry has a total value locked of more than $67 billion, making it a fast-growing sector of the finance industry. Most significant DeFi projects like Aave, Curve Finance, and Polygon are built using Ethereum’s blockchain.

Ethereum dropped sharply in the overnight session as part of the overall decline in the cryptocurrency industry. Bitcoin, the biggest cryptocurrency in the world, dropped below a key support level, in a sign that there are not enough buyers of the coin. In most cases, a Bitcoin drop is usually accompanied by a decline of other altcoins like Ether and Cardano.

Bitcoin declined even as MicroStrategy announced a plan to raise $400 million to buy Bitcoin. The company is now one of the biggest cryptocurrency holders, in a move that many analysts have criticized. 

Ethereum price also declined as China signaled that it would continue its crackdown on cryptocurrencies. In reports published yesterday, the media said that the country had deactivated hundreds of the most active cryptocurrency social media users. In May, the People’s Bank of China (PBoC) said that it would prohibit financial companies from dealing with the coins.

Inflation data ahead

The Ethereum price is also dropping ahead of the upcoming US inflation numbers that will be announced on Thursday. Analysts expect the data will show that the headline consumer price index (CPI) rose to 4.7% in May, as the prices of most items rose. In the past few months, the prices of commodities like copper and gasoline have jumped over 100%.

Excluding the volatile food and energy products, analysts expect the data to show that inflation rose by more than 3%. These numbers will be substantially above the Fed’s target of 2.0%. 

US inflation numbers are significant in the past few months for Ethereum and other cryptocurrency prices because of their impact on interest rates. Maintaining stable inflation is one of the Fed’s dual mandates. Therefore, with the US unemployment rate falling, there is a possibility that the Fed will be forced to start tightening. 

Indeed, some well-known analysts have pressed the Fed to tighten. Recently, Janet Yellen, the Treasury Secretary, made the case that the Fed ought to start tightening. Similarly, Rick Rieder, the Chief Investment Officer of fixed income at Blackrock, has also suggested that the bank should tighten.

While the Fed has remained adamant that the easy money policies are here to stay, analysts have started to price in future tightening. Higher interest rates are usually negative for Ethereum and other risky assets.

Ethereum price analysis

On the four-hour chart, we see that the Ethereum price made a major bearish breakout on Tuesday. It managed to move below the lower side of the triangle pattern and the 25-day and 15-day Exponential Moving Averages (EMA).

ETH/USD chart

The coin also approaches the 23.6% Fibonacci retracement level while the Relative Strength Index (RSI) has dropped to 33. 

Therefore, in the near term, the coin will likely keep falling as bears target the next key support at $2,000, which is about 15% below the current level. However, a move above $2,750 will invalidate this prediction.

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