Silver prices have embarked on a two-day rally, climbing back above the mid-$22.00s and flirting with the weekly high. This upswing comes amidst a subdued dollar and cautious market sentiment ahead of key economic data releases in the US, including the flash PMI report and GDP estimates. Lower interest rates, a potential outcome of these reports, could decrease the opportunity cost of holding non-yielding bullion and further fuel the silver rally.
However, the near-term path remains uncertain. A strong US economy and potential pushback from the Fed on aggressive rate cuts could dampen silver’s upward momentum. The market is now pricing in a less than 50% chance of a Fed rate cut in March, down significantly from 81% just a week ago.
Geopolitical tensions, on the other hand, offer a potential buffer against significant price drops. Additionally, the $22.00 mark serves as a psychological support level, closely monitored by traders and likely to hold as a floor in the near term.
Technical
The 4-hour chart shows that the price action sits resolutely above the 50-SMA (blue line), a testament to the bulls’ recent victory. The 38.20% Fibonacci retracement level ($22.943/ounce) stands as the level of significance for a push higher. A successful break above the level, on significant volume, would likely bring the 50.00% Fibonacci retracement level ($23.259/ounce) and 61.80% Fibonacci retracement level ($23.575/ounce) into play in the short term.
The downward-sloping 100-SMA (orange line), positioned above both the 20-SMA (green line) and 50-SMA, introduces an element of bearish influence. The 100-SMA’s dominance implies a prevailing longer-term downward trend. Therefore, a break below the 50-SMA may signal a resurgence of bearish momentum likely leaving the 23.60% Fibonacci retracement ($22.551/ounce) as the next defensive line. A break below the initial support could confirm the bearish momentum, likely leaving the $22.212/ounce and $21.919/ounce support levels within the bears’ reach in the near term.
Summary
Silver’s recent price action hints at a potential bullish continuation, supported by a weaker dollar and anticipation of lower US interest rates. However, the downward-sloping 100-SMA and cautious market sentiment suggest that the rally may face challenges. The key Fibonacci retracement levels and moving averages provide crucial technical checkpoints to monitor in the coming sessions. Ultimately, the direction of silver will likely hinge on the upcoming US economic data and the Fed’s monetary policy stance.
Sources: TradingView, Trading Economics, Reuters, Dow Jones Newswire.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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