It seems evident that the Silver rally which we saw since the beginning of this year is starting to show signs of fading. Managing to reach the highs of 32.45, it seems that Silver prices are set to drop for the week ahead. On Friday, silver closed at 31.39, trading in the region of the 38.2% and 50% levels.
There has been a lot of fundamentals in play in regards to silver v/s the US dollar. Last week we saw confidence returning to the greenback. The US Dollar Index closed at 80.28 on Friday having been on a uptrend since reaching lows of 79.2 in early February. The greenback however, is still yet to touch the 2013 high of 80.65, which happened on 9th of January where Silver was trading in the region of 30 to 30.77.
The coming week is relatively light in respect to influence on silver, with the exception of industrial production due on Friday, 15th February. Given the above, for most of the week there isn’t much fundamentals that could help push silver prices higher. Let’s take a look at a couple of charts. The below chart is plotted with median lines and Fibonacci levels on the daily time frame. As you can see, price is currently trading between the 38.2% and 50% levels and well outside of the upper median line. You can click on the chart below to see an enlarged version.
Plotting another median line from the 4 Hour chart, we notice that price has already fallen out of the lower median line and heading closer to the lower trigger line. We see some kind of support being formed at the 31.29 region. In all likelihood, silver could very well test this region, considering it also coincides with the lower trigger line. Expect a bit of choppy movement around this region before prices set themselves up for a further downward drop. Click on the chart below to see a bigger picture.
For traders, watch out for the region of 31.39 (where price closed on Friday) and the region of 31.29 in order to understand how price will be behaving. A breach of the lower trigger line could set the price to fall right through to the 30.738 region, with the possibility that price could go back up again in order to retest the lower trigger line and establish a strong resistance level there.
Either ways, the best bet would be to wait for a new candle to open below the lower trigger line and wait for the next candle to re-test the trigger line in order to form a resistance level before dropping further.
Silver COT Report – Feb 5th
The February 5th COT report for Silver, showed that the reportable positions that includes Swap dealers and Managed Money, also known as non-commercial interest saw a drop to 2980, compared to January 29th open interest of 6253. In January 29th’s report we notice an increase from short to long positions, while the recent report shows a bit of consolidation going on as long positions were dropped by -525 while short positions dropped -1329.
XAGUSD Outlook: Bearish, but expect some choppy movements.
Potential Price target – 31.16 with target price of 30.73 (+/- a few pips)