Ethereum is testing the lower bound of its recent trading range after a hawkish Jackson Hole speech from Fed Chair Warsh reversed the market's "debasement" trades. The coin has so far held up better than gold and the dollar, but a breakout in either direction could now set the next trend.
Ethereum dropped on Friday after Fed Chair Warsh delivered a hawkish speech at the Jackson Hole Symposium, and the token now risks a breakdown from its recent range. Hawkish Fed expectations are weighing on risk sentiment across the crypto market.
Warsh's speech reverses the debasement trade
According to Fed Chair Warsh: "I would be hard pressed to describe broad financial conditions as restrictive". The market read that line as Warsh leaning against the recent easing in financial conditions, and conditions retightened as a result.
Ethereum and other cryptocurrencies had rallied on debasement fears following the US Treasury's announcement that it was increasing the size of its liquidity support buyback operations for longer-dated securities. Warsh's speech triggered a reversal in those debasement trades, with gold and the dollar returning to their levels from before the Treasury announcement. Ethereum, however, showed resilience and simply extended its consolidation near monthly highs.
Ethereum holds a tight range
On the daily chart, Ethereum is still consolidating around the major 2,450 swing high, though the picture has turned more bearish. Sellers will likely keep stepping in around these levels, defining their risk above resistance to position for a drop toward the upward trendline. Buyers, meanwhile, want to see price break above the monthly high to build bullish bets toward the 3,400 level.
The 4-hour chart shows rangebound action between 2,350 support and 2,550 resistance, and participants will likely keep playing that range — buying support and selling resistance — until a breakout resolves it.
What comes next for rate expectations
Warsh reiterated that the Fed is focused solely on inflation and said progress has been slow. Only a soft US CPI report could bring the probability of a hike below 50%, currently priced at 67%, and deter the Fed from hiking at its upcoming meeting.
If the probability stays at or above 50%, the Fed may be forced to hike rates regardless, since holding off would send a dovish message and ease financial conditions again. Easing financial conditions and a dovish repricing in inflation expectations would support Ethereum, while a hot CPI print or hawkish surprises should weigh on the token and trigger selloffs.
Today brings the US ADP report, followed by Fed's Waller, US jobless claims and the ISM Services PMI tomorrow, and the US NFP report on Friday.
Source: InvestingLive
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