Before Federal Reserve Chair Jerome Powell's announcement of a 25 basis point (bps) interest rate cut, Ethereum (ETH) holders were optimistic. Many anticipated this event would drive a rally toward $4,500. Contrary to these expectations, however, ETH experienced a 4.50% decline shortly thereafter, casting doubt on prospects for a significant breakout.
The decline has dampened enthusiasm, prompting questions about Ethereum's future trajectory. This contrasts with reactions to previous rate changes. Several months ago, a Federal Reserve decision to cut interest rates by 50 bps led to a notable rally in cryptocurrency prices, including Ethereum. At that time, many anticipated a similar move before the year's end, which did not occur.
Following the recent decision, Ethereum’s price fell from $3,890 to $3,624. Although there has been a modest recovery, on-chain indicators suggest that this rebound might be deceptive. One such indicator is the price-Daily Active Addresses (DAA) divergence. This metric evaluates if user participation grows along with price changes. A positive divergence suggests increased engagement and a bullish outlook for the price.
Conversely, a negative reading indicates declining interactions, signaling bearish tendencies. Santiment reports that Ethereum’s price DAA divergence has descended to -98.28%, showing reduced user participation. Continuation of this trend could lead to a steeper decline in ETH’s price.
Additionally, another indicator, the Coinbase Premium Gap, supports expectations of further ETH decline. This metric assesses the price difference between the ETH/USD pair on Coinbase and Binance. A high premium on Coinbase suggests vigorous buying activity among US investors, potentially driving prices up. Recent data show the premium gap has dropped to -1.96, indicating considerable selling pressure.
ETH’s Federal Reserve rate cut reaction wasn't the sole reason for its decline. The formation of a head-and-shoulders pattern on the 4-hour chart also signals potential bearish shifts. This classic pattern forecasts trend reversals from bullish to bearish. The trend's reliability hinges on trading volume, which has decreased as ETH’s price broke the neckline.
Should current conditions persist, ETH might fall to $3,501. Conversely, increased volume and buying pressure could invalidate this prediction, propelling Ethereum’s price to $4,109 and eventually toward $4,500. The article originally appeared on BeInCrypto.