Silver has been beaten up recently, sliding from 24 USD to 22 USD, or 8%, in a matter of days. The price dropped below July’s lows and fell to fresh ten-month lows, but now it looks like sentiment might be turning.
Later in the day, US building permits will be released, expected to decrease slightly to 1.61 million in August, down from 1.63 million in July. Housing starts are forecast to rise somewhat, from 1.53 million to 1.58 million annualized. Lastly, the US current account deficit should narrow slightly, according to estimates.
None of these data usually impact silver, but they might cause some volatility in the USD and possibly influence precious metals.
Silver bars or ingots background, Source: shutterstock.com
Dovish or hawkish Fed?
More importantly, the Fed starts its two-day meeting today, and we will find out the results of this meeting tomorrow . Previously, investors had anticipated the central bank to announce tapering at this month’s meeting. However, considering the recent weakness in the economic data, mainly in the labor market, the Fed might set a date for tapering to November.
The latest sell-off in stock markets and volatility might also push the Fed to a more cautious tone as the central bank does not want to risk a more extensive correction in equities. The Fed should acknowledge that the time for reducing asset purchases nears, but it is not expected to make any hawkish projections for rates, despite soaring inflation.
Markets may be sensitive to any signals about the timing of monetary tightening. It is quite a close call, but we do not expect the Median Dot Plot for the first-rate hike to shift from 2023 to 2022. That would ultimately underpin Powell’s recent rhetoric around the de-linking of tapering and tightening and keep rate expectations capped. In FX, this should translate into a weaker dollar after the FOMC announcement,
Should the USD start another leg lower, it might be positive for silver, especially since the daily chart is currently looking bullish.
Charts point to a possible bounce
As previously said, silver dropped below July’s lows, killing all the stop-losses below this essential support. However, the bearish pressure has eased immediately, and it looks like a short-term bullish momentum is forming.
That is a well-known reversal formation, known as a bearish trap or a false breakdown. The focus of this formation is to cause maximum pain for most of the traders, ie. Tagging stop-losses of long positions and squeezing new short positions opened on the breakdown.
Should silver close above July’s lows at 22.35 USD, the pattern could be confirmed, potentially starting a short-term leg higher. The target of this squeeze could be at previous lows near 23 USD. Additionally, there is a nice bullish divergence between the MACD and the price, further supporting the bounce hypothesis.
Silver daily chart, Source: Author´s analysis, tradingview.com
Comments