Ethereum’s native token, Ether (ETH), is poised to break above $3,000, largely due to a classic bullish reversal pattern on its shorter time frame charts, as well as a massive surge in ETH outflows from Coinbase.
ETH price forming a falling wedge
The price of ETH has been forming a falling wedge pattern since late March 2022, raising the prospect of a breakout in May.
A falling wedge occurs when the price is trending lower within the range defined by two descending and contracting trend lines.
As a rule of technical analysis, these wedges resolve after price breaks out of its range and rises to a length equal to the maximum distance between the upper and lower trendlines of the pattern as measured from the breakout point.
The maximum descending wedge height is around $395. Assuming ETH closes above $2,850, which is a potential breakout point, a further rally of $395 to $3,150 is more likely with increased volume.
Coinbase ETH outflow hits record high
The medium-term upside outlook for the ether market aligns with bullish on-chain data.
Notably, data from CryptoQuant shows that the amount of ETH leaving Coinbase, the second-largest cryptocurrency exchange by trading volume, reached its highest level on May 3.
$ETH Coinbase outflows hit record high
Live chart https://t.co/PiITw2ZFf3 pic.twitter.com/tlFQndUhvQ
— CryptoQuant.com (@cryptoquant_com) May 4, 2022
Meanwhile, ETH balances across all cryptocurrency exchanges fell on May 3 to their lowest levels since August 2018, according to an on-chain metric from Glassnodes.
Both of these metrics suggest that traders prefer to hold Ethereum tokens rather than exchange them for other assets.
They also coincide with a recent recovery in upside sentiment among small Ethereum traders, with an increase in the number of addresses with minimum balances of 0.1 ETH, 1 ETH and 10 ETH.
Ethereum balances were higher across retail addresses as the price of ETH moved lower, suggesting that traders have been buying ETH at local lows. This further supports the bullish reversal setup of the descending wedge.
Bearish long-term outlook
However, the possibility of Ether breaking the $3,000 level has not taken it out of the generally long-term bearish pattern.
As Cointelegraph recently reported, ETH is likely to break below its ascending triangle range in the second quarter of 2022, with a downside target around $1,820 to $2,670, depending on the breakout point.
Other downside clues come from the macro front, where ether, like its biggest rival Bitcoin (BTC), remains positively correlated with U.S. stocks, suggesting it will drag traditional markets down due to one common factor: a hawkish Federal Reserve.
The U.S. central bank will issue a policy statement on May 4 at 2:00 pm EST, followed by a press conference by Chairman Jerome Powell at 2:30 pm EST. Officials said they would raise benchmark interest rates by 0.5 percent and approved plans to unwind their $9 trillion portfolio.
Related: Smart money adds to ETH holdings even as traders warn of a drop to $2,400
According to Bloomberg, researchers at Strategas Research Partners and Morgan Stanley expect the U.S. benchmark S&P 500 to drop another 15-16% in 2022. ETH faces a similar downside outlook this year due to its consistently positive correlation.
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