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Silver has started the new trading in a positive fashion, with the metal rallying by over two percent after President Trump unexpectedly signed the $900 billion COVID-19 stimulus bill earlier this morning.
Last weeks rally towards the $27.40 level started to fizzle-out, following renewed interest for the US dollar, and complications with the US stimulus package. Now that the stimulus bill has been approved silver has once again started to rally, and is starting to challenge the $26.50 level.
Silver bulls ideally need to break past the former weekly high, around the $27.40 level, to regain the upside momentum that was seen in the metal earlier last week. Silver bulls may need to see a number of factors to come into play for a new monthly high to form.
Firstly, continued gains in gold above the $1900 level is likely to be supportive for silver prices. Due to the strong correlation the metals share, silver tends to do well when the price of gold is rising.
One other component that needs to fall into place is US dollar weakness. Continued weakness in the US dollar weakness should help cement further gains for silver prices this week. Silver will also react positively if the COVID-19 bill offers $2000 stimulus checks, instead of $600 stimulus checks.
Additionally, positive manufacturing data from the Chinese economy later this week should be positive for silver prices. Silver is needed for a number of key consumer goods, thus strong Chinese economic data is supportive for higher silver prices.
The only downside risk for silver prices at this stage is Bitcoin. Traders and investors are pilling into the number one digital asset as a hedge against US dollar weakness and inflation. Instutional and retail investors may continue moving speculative capital away from silver and gold, and into Bitcoin.
This is especially true at the moment, as Bitcoin continues to surge to new highs close to $30000, and is vastly outperform gold and silver in terms of annual gains as we approach the end of 2020.
Silver Short-Term Technical Analysis
Technical analysis on the four-hour time frame shows that a bearish head and shoulders pattern has started to form, and silver may be in the process of carving out a final right-hand shoulder to complete the bearish pattern.
A sustained drop underneath the necline of the pattern, around the $25.00 level, would be extremely bearish for silver prices at this stage, and could trigger wide spread weakness in silver for several days.
Source by ActivTrader.
According to the size of the potential bearish pattern, sliver could drop towards the $22.60 technical region if a sustained breakout below the neckline of the pattern, around the $25.00 level, occurs.
Should we see silver prices rallying past the $27.40 area this week, and invalidating the bearish pattern, then a major bullish rally towards the $30.00 area could take place.
Silver Medium-Term Technical Analysis
Technical analysis on the daily time frame shows that a major breakout from an extremely large falling channel took place earlier this month, after silver prices broke past the $25.00 resistance area.
According to the size of the falling price channel, silver could be preparing to rally towards the $30.50 resistance area over the medium-term horizon.
Source by ActivTrader.
Technical traders should be aware the falling price channel is currently located around the $24.50 level, and as such, it remains a make or break price zone for silver.
In terms of key technical support, the $25.80 and $25.50 levels are the key downside levels to watch. To the upside, silve has strong resistance around the $27.40 and $28.50 levels respectively, prior to the benchmark $30.00 level.
