ETH Analysis: Losing Momentum After Fed Rate Cut

Before Federal Reserve Chairman Jerome Powell announced a 25 basis point (bps) rate cut, Ethereum (ETH) holders were optimistic that this event would drive a price surge to $4,500. However, the rate cut did not bring the expected price increase, with ETH dropping 4.50% immediately after.

This price drop has dampened hopes for a significant breakout, raising questions about Ethereum's future.

Ethereum reacts negatively to the previous rate cut

A few months ago, the FED cut rates by 50 bps. This move had driven a significant price increase in cryptocurrencies, including Ethereum. At that time, the sentiment leaned towards expectations of a similar rate cut before the year-end. However, this did not materialize. After yesterday's decision, the ETH price dropped from $3,890 to $3,624. While the cryptocurrency has recovered slightly, some on-chain indicators suggest that the recovery effort may just be a fake-out.

One of the indicators signaling this is the Price-Daily Active Addresses (DAA) divergence. The DAA divergence checks whether user participation is increasing along with the price. When it is positive, it means that interaction with the cryptocurrency has increased and is beneficial for the price.

According to Santiment, Ethereum's Price-DAA divergence has dropped to -98.28%, indicating lower user participation. If this trend continues, the ETH price may face stronger declines.

In addition to the above indicator, the Coinbase Premium Gap is another metric supporting further downside for ETH. This index measures the price difference between the ETH/USD pair on Coinbase and the same pair on Binance. When the price premium is high on Coinbase compared to Binance, it signals significant buying activity from US investors. This buying pressure can come from increased demand in the region and support price appreciation.

Conversely, when the Coinbase price is lower than Binance, it may indicate a relative cooling of demand in the US market or stronger selling pressure from institutional or retail investors. The chart shows the premium gap has dropped to -1.96, indicating significant selling pressure on ETH after the Fed rate cut.

ETH Price Prediction: Potential Decline to $3,501

Not only reacting to the FED rate cut, ETH is also declining due to the formation of a head and shoulders pattern on the 4-hour chart. The head and shoulders pattern is a classic technical analysis pattern that signals a potential trend reversal from an uptrend to a downtrend. The pattern is characterized by a price increase (left shoulder), followed by a peak (head), and then a decline (right shoulder). When the price breaks below the neckline after the formation of the right shoulder, it signals a downtrend reversal.

However, the reliability of the pattern depends on the trading volume. As seen below, the volume around ETH has declined, and the price has broken below the neckline.

If this holds true, the ETH price could decline to $3,501. However, if the volume increases along with buying pressure, this prediction may not materialize. Instead, the Ethereum price could rise to $4,109 and ultimately target $4,500.