Ethereum Drops Below $4k. How Low Until Recovery?

Ethereum experienced another significant correction a few hours ago, causing prices to plummet to levels not seen in almost two months.

The altcoin retraced from $4,153 to a low of $3,825. Its latest decline is unsurprising as a previous outlook pointed to a possible slip below $3,900. Nonetheless, it is trading higher than its low, signifying an ongoing buyback.

Data from CryptoQuant supports the assertion that the asset is experiencing an increase in buying pressure. Exchanges saw an inflow of 1.26 million ETH and an outflow of 1.29 million ETH. As a result of this change in flow, exchange reserves are slightly down.

The altcoin is recovering and is edging closer to the $4k mark. However, the derivatives market registered massive irreversible losses. Total liquidations over the last 24 hours exceeded $1.14 billion. Traders lost a whopping  $437 million during this period, the highest rekt capital.

Traders have since become more cautious, resulting in a significant decline in open interest. It is also worth noting that the sentiment across derivatives is negative, with the taker buy-sell ratio dropping below 1.

Nonetheless, questions about what caused the dip rages. One of them is the release of economic data. The US authorities released macro data on GDP and jobless claims. The gross domestic product increased on the quarterly scale, coming in at 3.8% higher than the forecast. Additionally, unemployment benefit applications came in at 218k, lower than the previous.

While this data is bullish, it contradicts the growing desire among many investors for further rate cuts. However, the positive data goes against it as it offers reason not to effect the cuts.

How Low Will Ethereum Go?

A closer look at the 1-day chart shows that Ethereum rebounded at a level with reduced demand concentration. The last time the mark served as support was in December, and the spell was short-lived, suggesting that it’s not one of the toughest. This also casts a dark shadow over how prices may move in the coming days.

ETH may retrace lower if it retests $3,800. However, indicators suggest that the apex altcoin will rebound to higher levels. For example, it dropped below bollinger bands a few hours ago and trades below it at the time of writing.

Nonetheless, the moving average convergence divergence displayed a bearish divergence a few days ago. The gap between the 12 and 26 EMA is at its widest, suggesting that the selling pressure is nearing its peak. Adding to the number of indicators signalling trend reversal is the relative strength index. It is at 31, a point from being oversold.

While suggesting an impending end to the downtrend, they do not entirely rule out further retracements. The US authorities will publish new economic data on Friday; the PCE is one news that could cause significant volatility.

The Fibonacci retracement levels points to possible support levels. A closer look shows that it supports the  claims that $3,800 is not a tough mark. Ethereum slipped below the 23% fib level on Monday and is closer to the 38% fib level. This means that ETH may drop to $3,660 before rebounding.

Nonetheless, previous price movements suggest that failure to defend the 23% fib mark will send the altcoin as low as $3,300.

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