XRP has seen a price bearish divergence, hinting at a drop to $2.28

The January XRP price rally is in danger of hitting a point of exhaustion due to an emerging reversal signal.

XRP price chart suggests 25% correction

XRP rallied nearly 50% in January, briefly peaking at $3.39 on January 18, its highest level in seven years. However, the breakout rally may face a headwind, with technical indicators pointing to a potential bearish correction of up to 25%.

The main concern is the formation of a bearish divergence between the XRP price and the daily Relative Strength Index (RSI). While XRP is climbing to multi-year highs, the momentum oscillator RSI has trended lower, which is trending downwards.

This divergence indicates that the upward momentum behind XRP's rally is weakening, increasing the possibility of a reversal in the coming days or weeks.

Additionally, XRP price remains above the 50-day exponential moving average (50-day EMA, red wave), a key technical support level.

As of January 18, the 50-day EMA sits near $2.28, roughly 25% below XRP's current price of $3.07. Historically, overextended price rallies have seen traders lock in their profits and the market stabilizes, seeing an 80% correction below their 2018 EMA level.

Moreover, XRP's latest rally brought the RSI reading to 66.87, close to the 70 overbought limit.

While not yet overbought, the downtrend of the RSI suggests that buying pressure is easing at current levels, which could extend selling pressure to the $2.28 lower target.

Is the XRP bull over?

As mentioned above, XRP's bearish divergence raises the possibility of a return to $2.28, which is in line with the current bullish flag pattern.

A bull flag pattern is formed when the price consolidates in a descending parallel channel after a strong uptrend. It is usually resolved when the price breaks above the trend line and rises to the previous high.

XRP has already entered a bullish flag pattern. However, after the breakout, the price usually tests the upper trend line of the pattern to confirm as new support.

Such a retry confirms the break and provides an entry point for new buyers. A successful breakout above the upper trendline reinforces the bullish case and sets up a move higher toward the initial upside target.

In XRP's case, the bull flag upside target is around $4.42, a 40% increase from current price levels. Additionally, XRP's long-term outlook remains bright, supported by the potential launch of XRP exchange-traded funds (ETF) in the US.

RELATED: XRP Price Up to $10–$50 ‘Compelling' Place if ETF Approved, ChatGPT Says

JP Morgan analysts predict these funds could attract $4 billion to $8 billion in assets under management.

If the price of XRP fails to hold above the upper line of the flag, the bullish setup may be completely lost. In such a scenario, the next lower target could be the pattern low near $1.90, a level that would prevent XRP from falling in December.

A break below $1.90 would turn the trend into indecisiveness, opening the door to a deeper decline, possibly towards the 200-day EMA (the blue wave) near $1.35.

This article does not contain investment advice or recommendations. Every investment and business activity involves risk, and readers should do their own research when making a decision.