Ethereum is approaching the psychological level of $2,000 after jumping nearly 5% following lower-than-expected US inflation data.
The positive sentiment has increased investor confidence that the Federal Reserve (Fed) will not take an aggressive approach to interest rate policy, thus supporting the rise of risky assets including cryptocurrencies.
At the time of writing, the price of Ethereum is at $1,923.78, down 0.03% since it opened in early trading on Thursday in the Asian session.
Ethereum has managed to break through a key resistance level around $1,850, which has previously blocked several price recovery attempts.
The rise was also driven by a massive closing of short positions as many traders were forced to buy back Ethereum after the price broke through that level.
According to CoinGlass data, a large number of short positions concentrated between $1,800 and $1,850 were liquidated when Ethereum broke through the zone.
This accelerated the price increase to near $1,900, while the $1,900 to $1,950 zone is now the main resistance that needs to be broken before Ethereum can potentially test the $2,000 level.
From a technical perspective, Ethereum is seen to have completed a rounded bottom pattern, which usually signals a change from a downtrend to an uptrend.
A break above the $1,850 level also opens up space for a price target around $2,190, which is the main resistance area that has been reached before.
Several technical indicators also show that momentum is still in favor of buyers.
The Aroon Up indicator remains at a high level, while the Relative Strength Index (RSI) is around 63, indicating that Ethereum still has room to continue rising before entering the overbought zone.
At the same time, the MACD and Chaikin Money Flow (CMF) indicators also reflect the capital flow that continues to enter the market.
Apart from technical factors, Ethereum is also supported by the increasingly limited supply as a large portion of ETH continues to be locked in the staking program.
This has reduced the amount of Ethereum available on exchanges, helping to support prices as demand increases.
Market sentiment also continues to be supported by positive developments regarding digital asset regulation in the United States and the acceptance of the Spot Ethereum ETF, which has maintained institutional investor interest in the asset.
However, Ethereum still faces challenges in the $1,900 to $1,950 zone, which is expected to be a profit-taking area for some investors.
In addition, risks such as a resurgence in inflation, geopolitical tensions and changes in Fed monetary policy still have the potential to put pressure on the market.
For now, the $1,850 level is the most important support.
As long as Ethereum remains traded above this level, the prospects for testing $2,000, and even moving into the $2,100 to $2,190 area, remain positive.
