The bearish setup comes amid a growing divergence between ether price and momentum.

Ethereum‘s native token Ether (ETH) hit an all-time high of around $ 4,867 in early November, only to drop almost 20% a month later due to increased profit taking.

And now that the ETH price holds USD 4,000 as an important level of support, there is a risk of further sell-off in the form of a variety of technical and fundamental indicators.

ETH price rises

First, ether appears to have broken out of the “rising wedge,” a bearish reversal pattern that occurs when price travels upward in an area defined by two rising – but converging – trend lines.

Put simply, as ether price approaches the top of the wedge, it risks falling below the lower trendline of the pattern, a move many technical chartists see as a sign of further losses. Your profit target appears at a length that corresponds to the maximum wedge height, measured from the breakout point.

As a result, Ether’s falling wedge target appears to be near $ 2,800, also near its 50-week exponential moving average (50-week EMA).

Bearish divergence

A bearish outlook is emerging for the ether market, although it is likely to have come under strong selling pressure elsewhere in the crypto market in recent weeks.

For example, Bitcoin (BTC), the leading cryptocurrency by market cap, is down 30% for nearly a month after hitting a record high of $ 69,000 in early November, well above Bitcoin’s decline, over the same period. This has led many analysts to refer to Ether as a “hedge” against the fall in Bitcoin prices – and the ETH / BTC recovery to its best level in more than three years.

That doesn’t change the fact that Ether’s recent rally coincided with a decline in its weekly relative strength index (RSI), signaling a growing divergence between price and momentum.

Additionally, ETH’s recent decline also caused the RSI oscillator to drop below 70, a classic sell indicator.

Fed “dot plot”

Further unfavorable signs for Ether come ahead of the two-day monetary policy meeting of the US Federal Reserve, which on the 14th has enough flexibility in possible interest rates. skyrocketing next year.

Just last month the Fed announced that it would increase its bond purchases by 15 billion a month. Continuing rising inflationary pressures prompted Fed officials to end the easing “maybe a few months early”.

20 CenBanks will hold meetings next week as inflation continues to rise, with final decisions for 2021 as the Fed, ECB, BoJ and BoE jointly account for half of the global economy. CenBank’s balance sheet has grown to ATHs, but now there may be a difference. https://t.co/GgOLGCNbjR pic.twitter.com/mrrhwUVcet

– Holger Zschaepitz (@Schuldensuehner) December 12, 2021

Market outlooks have also been adjusted, with an economic climate survey of 48 economists predicting stimulus measures will end in March 2022 and most respondents favoring a rate hike in the second quarter.

The phase of monetary policy easing after March 2020 helped push the ETH price up by 3,330%. Hence, the growing possibility of a gradual decline, according to some ana, could certainly stop the current rally, if not the entire bull market.

From then on, I expect a very aggressive approach from the Fed because it will recognize that we are in a bubble and we have to do something very serious.

Then we get our multi-year bear market.

– KALEO (@CryptoKaleo) December 10, 2021

Markets expect the Fed to update its Policy Statement and Summary of Economic Forecasts (SEP) this week. Many central bank officials will adjust the dot plot in favor of an earlier than expected rate hike in order to counteract rising inflation.