Decision time as Ethereum eyes a break below a key support

Ethereum (ETH/USD) was a victim of an accelerated sell-off on Thursday. A drop of 5% was enough to take Ethereum to below $1,250, a key support zone. As of press time, Ethereum was trading at $1,199, slightly below or at the support zone. The sell-off is not unique to ETH, as most cryptocurrencies fell ahead of inflation data.

The latest fall in Ethereum and other cryptocurrencies highlights that the bear market is still undone. Investors are cautious that the US central bank could hike rates faster in response to rising inflation. An inflation report on Thursday showed that prices rose by more than the expected rate of 8.2%.

Besides, the limited activity in the NFT and DeFi sectors has hit Ethereum. According to DappRadar, the third quarter NFT sales have fallen by 60% from the second. Tighter economies and recession risks have played a significant role. Of course, Ethereum implemented the much-awaited Merge, a major plus for the blockchain and ETH. However, as CoinJournal reported, teething issues remain. As such, the ETH price has been moving in tandem with the broader sector.

Ethereum price movement and prediction in a bear market

Source – TradingView

A daily chart technical outlook shows ETH is under pressure. The cryptocurrency has broken below the $1250 support. The RSI reading is at 32, indicating that ETH is near or at the oversold level. Two possibilities are likely for ETH.

The first possibility is a continuation of the bear momentum. In the bear scenario, sellers will manage to keep buyers out at the current price level. That will force an accelerated decline, taking ETH back to $1,000. The bear scenario remains more likely on account of high inflation.

The second possibility is a bullish reversal. While we consider the scenario less probable, it cannot be ruled out as market dynamics change. In the bull case, the breakout candlestick could close at or above the open price. That would result in a false breakout and a bullish pin bar. 

Should you buy ETH?

Ethereum is not a buy since the two chances are possible. We need to watch for the close of the daily candlestick to make a decision.