Ethereum Bull Flag Rebound Signals 25% ETH Price Rally in July

On July 5, Ethereum’s native token, Ether (ETH), fell by up to 8% to around $2,800, its lowest level in two months, as the market’s attention turned to two bearish events: the German’s government selloff of Bitcoin worth hundreds of millions of dollars and the Mt. Gox trustee’s repayment of over 140,000 BTC to its creditors.

However, Ether’s bearish trend started showing signs of exhaustion ahead of the U.S. session. Notably, the ETH price rebounded by nearly 5.50% from the intraday low of circa $2,800, forming a longer wick to the downside, a sign of bullish rejection in technical analysis.

Ethereum Falls But Stays Inside Bullish Continuation Setup

The sharp upside reversal has raised ETH’s potential to extend its recovery in the coming days. At the core of this bullish outlook is the cryptocurrency’s prevailing bull flag setup.

Ether’s local support, around $2,800, aligns with the lower trendline of its bull flag pattern. The cryptocurrency has repeatedly bounced off this trendline, leading to rallies toward the flag’s upper trendline.

ETH/USD daily price chart. Source: TradingViewThis pattern raises ETH’s likelihood of rallying further toward its bull flag’s upper trendline, which is near $3,700, the support level from the May-June 2024 session that is up 25% from the current price levels.

However, the cryptocurrency must close decisively above two interim resistance targets: the 200-day (the blue wave near $3,000) and the 50-day (the red wave near $3,430) exponential moving averages (EMA).

Even a run-up toward $3,000 based on the current flag pattern projections could liquidate $400 million—500 million worth of short positions, according to data resource Coinglass. Meanwhile, hitting $3,430 would wipe out $2.54 billion of these bearish positions.

During a short liquidation, the short positions must be bought back to close the trade, which increases buying pressure in the market. This surge in buying can drive the price higher, creating a feedback loop where rising prices trigger more liquidations, further pushing the price up.

Conversely, a decisive break below the bull flag’s lower trendline will likely invalidate the bullish setup, pushing ETH’s price toward the next support target near $2,700 instead. Such a scenario will risk triggering $557.63 million worth of long liquidations, which may exacerbate the price decline further.

Ethereum ETF Launch in July

Ether’s ongoing price decline comes in the days leading up to the launch of Spot Ethereum exchange-traded funds (ETF)—probably by July 15, according to Nate Geraci, president of the ETF Store.

Vetle Lunde, senior analyst at K33 Research, anticipates the launch of Ethereum ETFs to be a “sell-the-news” event but stresses that Ether will recover from the dip shortly after, akin to how Bitcoin recovered after the launch of its nine BTC ETFs in the United States.

“Bitcoin saw a 13-day return of -21.5% following the ETF launch, stemming from GBTC outflows,” he noted, adding:

“We maintain a bullish ETH outlook in anticipation of net inflows equivalent to 0.75-1% of ETH’s circulating supply in the five months following the launch.”

Analyst Ted Pillow considered the same metrics, stating that ETH has bottomed out at $2,800.