Silver erases all Treasury-led gains as hawkish Warsh retightens financial conditions; focus turns to US CPI report
FUNDAMENTAL
OVERVIEW
Silver sold off on
Friday after Fed Chair Warsh delivered a hawkish speech at the Jackson Hole
Symposium.
The
key passage was him saying “I would be hard pressed to describe broad
financial conditions as restrictive". The market interpreted that as him
leaning against the recent easing in financial conditions and, therefore,
retightened them.
This process has, of course, extended the corrections
in the “debasement" trades, with silver returning to pre-US Treasury
announcement levels. The rate hike probabilities for the September meeting have
also increased, with the market now seeing roughly a 67% chance of a hike.
Warsh has also reiterated that the Fed is focused solely on inflation now
and mentioned that the progress has been slow. For this reason, I think only a soft US CPI report could bring the
probabilities below 50% and deter the Fed from hiking at the upcoming meeting.
If the probabilities stay at or above 50%, the Fed
might be forced to hike regardless because failure to do so would send a dovish
message and ease financial conditions again.
SILVER TECHNICAL
ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can
see that silver has erased completely the Treasury buyback announcement gains
after Fed Chair Warsh retightened financial conditions with his hawkish speech.
The price is now trading around
the key 63.00 support zone. This is where we can expect the buyers to step in
with a defined risk below the support to position for a rally into the 80.00
handle. The sellers, on the other hand, will want to see the price breaking
lower to increase the bearish bets into the 55.00 level next.
SILVER TECHNICAL ANALYSIS –
4 HOUR TIMEFRAME
On the 4 hour chart, we can
see more clearly the support zone around the 63.00 level. Again, this is where
the buyers will likely step in, with the resistance around the 66.70 level as
the first target. The sellers, on the other hand, will look for a break lower
to extend the drop into new lows.
SILVER TECHNICAL ANALYSIS –
1 HOUR TIMEFRAME
On the 1 hour chart, we
have a downward trendline defining the bearish momentum. The sellers will
likely continue to lean on the trendline with a defined risk above it to keep
pushing into new lows. The buyers, on the other hand, will look for a break to
pile in for a rally into the 66.70 resistance next. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Today, we get the US ADP report. Tomorrow, we have Fed’s
Waller, the US Jobless Claims and the US ISM Services PMI. On Friday, we
conclude the week with the US NFP report.
This article was written by Giuseppe Dellamotta at investinglive.com.