The increase of Ethereum has been driven by the decline in the US dollar which has dropped significantly lately. However, if positive economic data in the U.S. persist, the upward moving in the ETH/USD might come to an end.
Ethereum broke out to a new high in August recapturing the $400 level for the first time 2-years, but the rise and fall in ETH/USD could have been more of a function of the decline in the US dollar than investors entering into ETH/USD. The dollar has been under pressure as U.S. yields headed for all-time lows, but recent economic data in the U.S. has been better than expected which has helped the dollar gain traction and has capped the upward momentum in ETH/USD as well Bitcoin trading.
U.S. Yield Drop and Weigh on the Dollar
U.S. yield has traded down with the 10-year numbers hitting an all-time low of 50-basis points, but has rebounded back to the 70-basis point level. The decline was a function of very week U.S. data. In April the number of jobless claims moved above a record 22-million. The Fed moved to lower rates pushing them down to zero, which weighed on the 10-year yield and over the next few months pushed the benchmark to a record low.
The decline in U.S. yields weighed on the greenback. This took the dollar index, which is the dollar versus a basket of currencies, down from a high in March at 103, to a low in August at 91.75. It moved lower as the interest rates differential, the yield between the U.S. and other countries, moved in favor of the latter ones. Fear became pervasive that the dollar would no longer be considered the world’s reserve currency.
Change in Economic Data
As the calendar turned to September, data started to turn better in the U.S. Manufacturing information released by the Institute for Supply Management, showed that purchasing managers were upbeat. The ISM index jumped to 56 in August from 54. In July it was better than 54.8 that was expected by economists. The increase was the fastest improvement since late 2018. The ISM gauge was a low as 30 at the start of the pandemic but has moved higher helping to buoy the greenback at the beginning of September. The steady climb resembles the V-shaped recovery trend.
Ethereum Could Stall but 400 Seems to be Holding
The stronger than expected economic data has buoyed the dollar, which has initially capped the upside movement of ETH/USD. The exchange rate weekly price is moving away from overbought territory. The relative strength index (RSI) appears to have peaked near 80, which was above the overbought trigger level of 70. The movement down back below the 70-handle reflects accelerating negative momentum. Additionally, the fast stochastic, which is a momentum oscillator that measures both accelerating and decelerating momentum as well as overbought and oversold reading, generated a crossover sell signal in overbought territory. The current reading on the fast stochastic is 81, above the overbought trigger level of 80 which could foreshadow a continued correction in the ETH/USD.
Medium-term momentum is positive to flat. The MACD (moving average convergence divergence) index generated a crossover buy signal in July. This occurs as the MACD line crosses above the MACD signal line. The histogram is printing in positive territory with an upward sloping trajectory which points to grinding higher prices.
The Bottom Line
In summary, it appears that the movement of ETH/USD has been driven by the decline in the US dollar which has dropped more than 12% since hitting a high of 103 in March of 2020. ETH/USD has benefited and recaptured the $400 level and is currently consolidating near that range. The exchange rate is overbought and negative momentum is accelerating which means that the ETH/USD might correct even more. If positive economic data in the U.S. persist, the upward trend in the ETH/USD might be over.