Silver pulls back as hedging ahead of crucial Fed decision offsets US-Iran ceasefire relief
FUNDAMENTAL
OVERVIEW
Silver opened the week higher yesterday after the US halted its strikes
following 13 consecutive days of attacks, while Iran pledged to maintain a
ceasefire so long as the US remained on pause.
This has led to some optimism as traders took this
latest development as an early sign of a potential de-escalation and triggered
a selloff in oil prices.
Despite this positive development, silver erased the gains
and dropped to a new weekly low. The weakness seems to be more
about hedging activity ahead of tomorrow’s FOMC decision rather than fresh
Middle East news. In fact, the ceasefire is still intact, and the diplomatic
efforts are ongoing (although things can change on a dime).
The Fed is expected to hold interest rates steady but there might be one or
two dissenters voting for a rate hike at this meeting already. The forward
guidance will likely remain limited again under Fed Chair Warsh but based on
recent comments from policymakers, the pace of monthly inflation increases will
dictate the potential tightening pace.
If the situation in the Middle East remains calm and the Fed delivers on
expectations without any hawkish surprise, then we might see a relief rally in
the short-term and the next legs will be driven by US-Iran developments and US
inflation releases.
SILVER TECHNICAL ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can
see that silver has been mostly rangebound around the monthly lows. From a risk
management perspective, the sellers will have a better risk to reward setup around
the downward trendline to position for a drop into the 45.50 level. The buyers,
on the other hand, will want to see the price breaking higher to open the door
for a rally into the 71.50 level next.
SILVER TECHNICAL ANALYSIS –
4 HOUR TIMEFRAME
On the 4 hour chart, we have
a minor downward trendline defining the current bearish structure. If we were
to get a pullback into the trendline, we can expect the sellers to lean on it
with a defined risk above it to keep pushing into new lows, while the buyers
will look for a break to extend the pullback into the 64.00 handle and the
major trendline next.
SILVER TECHNICAL ANALYSIS –
1 HOUR TIMEFRAME
On the 1 hour chart, we have
another minor downward trendline defining the bearish momentum on this timeframe.
The sellers will likely continue to lean on the trendline to keep pushing into
new lows, while the buyers will look for a break to extend the pullback into
the next downward trendline around the 59.00 handle. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Today, we have the US
Consumer Confidence report and Trump-Netanyahu meeting. Tomorrow, we have the
FOMC rate decision. On Thursday, we get the US PCE price index, the Advance Q2
GDP and the Jobless Claims figures. On Friday, we conclude the week with the US
Q2 Employment Cost Index. Traders will also keep monitoring US-Iran headlines.
This article was written by Giuseppe Dellamotta at investinglive.com.