Ether (ETH), the native token of the Ethereum network, has fallen by about 25% against Bitcoin (BTC) since early 2024, hitting its lowest level in 40 months. The outlook for Ether is expected to be bearish in the coming weeks, especially as the Federal Reserve (Fed) is expected to cut interest rates in September.
ETH/BTC and USD correlation increases.
A key factor in the bearish outlook for Ethereum is the growing positive correlation between ETH/BTC and the US Dollar Index (DXY), which has fallen 5.35% from its 2024 high.
As of August 26, the 30-day average correlation between ETH/BTC and DXY was 0.78, up from 0.10 at the beginning of the year.
This trend suggests that traders are increasingly moving away from Ether in favor of Bitcoin, either reallocating their holdings or prioritizing new investments, especially as the US dollar weakens against major currencies.
Several factors have driven the Ether-to-Bitcoin capital inflow. One of them is the launch of Bitcoin-focused spot exchange-traded funds (ETFs) in the United States in January 2024. Since then, these ETFs have seen inflows of $17.86 billion, according to Farisde Investors data.
relevant: Why is Ethereum losing market share to Bitcoin?
Meanwhile, the Ether ETF launched in late July has seen a lukewarm response, with $465 million in withdrawals. The Grayscale Ethereum Trust (ETHE) alone has made matters worse, reporting a massive $2.53 billion in outflows, dampening trader enthusiasm for Ether compared to Bitcoin.
Looking at recent history, it seems likely that investors will be more inclined to allocate capital to Bitcoin rather than Ether as the dollar weakens following the anticipated September rate cut.
Dollar falls below key long-term support level
On August 23, the US dollar index fell below its horizontal support level for the first time in months after Federal Reserve Chairman Jerome Powell delivered a very dovish outlook at the Jackson Hole Symposium.
Independent market analyst Elsa Boom cited what appears to be a bearish Gartley pattern, pointing to the decline as a signal for further “freefall” in the dollar. As shown below, this is a harmonic pattern used in technical analysis to identify potential reversal zones in the market.
Boom expects the dollar to continue its downtrend and potentially target the 94-96 level as the pattern suggests.
“This is very bullish for BTC and cryptocurrencies,” he added.
ETH/BTC down 10% in September
A stronger positive correlation with DXY could see ETH/BTC decline in September, a scenario that becomes more certain if a V-top is formed on the shorter term chart.
The V-top pattern is characterized by a sharp rise followed by an equally sharp decline, forming a V-shape on the chart. In this case, ETH/BTC saw a sharp rise in late July, followed by a sharp decline in early August.
This pattern is confirmed when the price breaks below the support level of the lower V, which on this chart appears to be around 0.0427 BTC.
If ETH/BTC breaks below the support level convincingly, a drop to 0.0396 BTC by September is possible, which would be about a 10% drop from current price levels and the lowest level since early April 2021. The target is the height of the V-top (peak to bottom) and is projected to extend downward from the point of collapse.
Conversely, a bounce from the 0.0427 support level could completely invalidate the downtrend, and instead a rally towards the 0.0469 BTC level, which is the 50-4H EMA (red wave) of ETH/BTC until September.
This article does not contain any investment advice or recommendations. All investment and trading moves involve risk, and readers should conduct their own research when making decisions.