Stellar’s native token, XLM, is facing intense market pressure, slipping more than 25% since mid-May and falling below key technical support at $0.26. The recent 7% drop has brought XLM down to $0.249, and while the short-term outlook remains shaky, there are signs beneath the surface that a reversal may be forming.

Despite the bearish crossover that’s been in play since early June, there’s growing optimism among traders and analysts that Stellar might soon escape its downward spiral. Market participants are watching closely, with many eyeing key support zones and positive on-chain signals that hint at a possible breakout from the current falling wedge pattern — a technical formation often associated with bullish reversals.

Sentiment Shift Hints at Reversal

A deeper look at on-chain sentiment reveals a surprising twist. According to data from analytics firm Santiment, the overall emotional tone around XLM has turned significantly more positive this week. The total weighted sentiment has jumped from -0.775 to +0.192, with a surge of optimism noted on June 17, when positive social sentiment hit 11.31, vastly outpacing negative chatter, which registered at just 0.81.

This rise in sentiment indicates renewed confidence among traders, even as prices remain in decline. Social buzz is often an early indicator of trend reversals, especially in crypto markets where investor behavior is heavily influenced by narratives and crowd emotion.

Derivatives Market Flashes Bullish Signal

The XLM derivatives market is also showing signs of a shift. After spending weeks in negative territory, Open Interest (OI) weighted funding rates have recently flipped from -0.378% to +0.0029%, suggesting traders are betting on a recovery.

Much of this optimism may be attributed to recent fundamental developments in the Stellar ecosystem. One major catalyst includes Stellar’s integration efforts with PayPal’s PYUSD stablecoin, a move aimed at enabling cost-effective cross-border payments for small and medium-sized businesses. There’s also buzz around a potential collaboration with Web3 education platform EasyA, which could introduce Stellar’s tech to a new wave of developers and users.

Although these updates haven’t yet translated into upward price action, the derivatives data suggests traders are positioning for a move up — possibly in anticipation of a broader market reversal.

Price Action Stuck at Liquidity Floor

Technically, XLM is teetering near a crucial liquidity cluster around $0.25, according to data from CoinGlass. A breakdown from this level could trigger a long squeeze, accelerating downward momentum and pushing the price as low as $0.22 or lower. But if this level holds, it could become a springboard for a bullish bounce.

Much now depends on external factors. Chief among them is the current geopolitical tension between the U.S. and Iran. President Trump’s recent warning about a possible strike on Iran’s Supreme Leader rattled markets, but some analysts believe a diplomatic resolution could ease investor nerves. If tensions cool — particularly in relation to the Israel-Iran situation — the entire crypto market could breathe a sigh of relief.

FOMC Outcome Could Be a Deciding Factor

Also crucial is the Federal Open Market Committee (FOMC) meeting. With inflation still running hot, the Federal Reserve has held off on cutting interest rates. But any dovish shift in today’s statement could inject optimism into risk markets, including crypto.

If both macro and geopolitical narratives stabilize, XLM could gain the momentum needed to break out of its current slump. Holding the $0.25 support level is key; a bounce from this zone could see Stellar aiming to retest resistance levels around $0.28 and beyond.

Conclusion: Recovery Possible, But Catalyst Needed

While Stellar (XLM) continues to face technical and macroeconomic headwinds, the signs of a recovery are beginning to align. From improving on-chain sentiment to positive funding rates and new ecosystem partnerships, the groundwork for a potential bullish reversal is being laid.

But for XLM to truly rally, it needs a clear catalyst — whether that comes from geopolitical de-escalation, dovish Fed commentary, or a broader altcoin market rebound remains to be seen.

For now, $0.25 is the level to watch. A hold here could fuel the next chapter in XLM’s recovery story.