Silver staged a strong comeback towards the $26.00 level on the metals market last week, after US Treasury Secretary Janet Yellen outlined her desire for a multi-trillion US dollar infrastructure and stimulus packages.
The derivatives market also saw record one-day inflows of silver bets last week, following Yellen’s hawkish speech towards US fiscal spending. The inflows of new silver bets on the derivatives were said to be over $500 million.
Traders and investors appear to be speculating that record spending by the Biden administration will also cause the balance sheet of Federal Reserve to swell. Silver could well be the vehicle of choice for traders and investors betting against the US dollar.
Silver and the US dollar have a strong inverse correlation at the moment. For example, when the US dollar index falls, silver starts to benefit. This was particularly evident last week when the greenback started to fade on the foreign exchange market, and silver recovered back to $26.00.
Another example is yesterday, a clear move to risk-off in financial markets over fear of a stimulus delay caused the greenback to surge higher and silver to drop towards $25.00
Looking at the validity of the ongoing recovery for silver, two other elements are worth watching. Firstly, the Federal Reserve’s stance towards the United States economy on Wednesday, and the price movements of gold.
In the unlikely event that the Federal Reserve sound more hawkish than expected, it could seriously hurt the ongoing recovery in silver. Also, traders need to watch gold around the $1,880 level.
If gold struggles to break above the pivotal $1,880 level this week, and starts to weaken further, then silver could also falter. Traders should remember that more often than not the price of silver will follow the direction of gold prices.
Silver is finally balanced at the moment, the key trading range to watch is between $24.40 and $25.90 levels. If we see silver starting to settle either side of this range, then watch out for a new directional trend.
Silver Short-Term Technical Analysis
Technical analysis on the four-hour time frame shows that the short-term trend for silver remains bullish while the price trades above the $25.40 support level.
In terms of patterns, a bullish breakout from a falling price channel remains in place while silver trades above the $23.00 level. Bulls were recently encouraged, after silver failed to drop back inside the channel, following the early month drop towards the $24.00 area.
Going forward, silver bulls need to break through the $25.90 and $26.20 levels to encourage a technical test to of the pivotal $27.00 level, which has proved a sticking point for bulls this year.
Source by ActivTrader.
Silver Medium-Term Technical Analysis
The daily time frame highlights that an important Fibonacci retracement level is found around the $25.90 level. Failure to move past this important technical benchmark will be a major clue that weakness lay ahead for silver prices.
On the flip side, a series of daily price closes above the $25.90 should be considered very bullish for silver and should cement a strong technical bid-tone towards the metal.
Source by ActivTrader.
In terms of the big picture for silver prices, a massive cup and handle pattern continues to unfold, and is still in the early stages of developing.