Silver (XAG) prices continued to drop below $55 last week despite the weakness in the US dollar and US Treasury yields. The surge in oil prices keeps the inflation expectations high and raises the concerns about further rate hikes. The market is now waiting for the interest rate decision by the Fed on 28 October for further clues about the next direction on interest rates. In my view, the silver price may recover if the US dollar index continues to drop below 100.50.
High Oil Prices Keep the Risk of Rate Hikes
The US dollar index consolidated between 101.40 and 102.08 last week and remains below the 200-week moving average after reaching a high at 102.945. The correction in the US dollar index was driven by the weakness in U.S. Treasury yields.
The chart below shows that the 10-year U.S. Treasury yields dropped from 5.37% to near 5%. The 10-year U.S. real yields also followed the correction and dropped near the 2.65% level.
Oil prices remain strong and surged last week. Brent oil is nearing the $120 area, which is considered a strong key resistance in the oil market. A break above $120 will likely open the way toward the $130 to $140 region in the short term. The high oil prices will likely fuel expectations of inflation, which will likely keep interest rates high for long period.
The chart below shows that inflation expectations have increased to 4.7% in October, which is up from 4.6% in September. The market is now waiting for the interest rate decision by the Federal Reserve on 28 October. The Fed is expected to maintain interest rates in October. But the likelihood of a rate hike in December is high.
If the Fed increases interest rates further, it will likely keep the US dollar strong, which will increase pressure on silver prices further.
In my view, the strong oil prices and rebound in U.S. Treasury yields may keep the U.S. dollar strong. This scenario will likely trigger a rebound in the U.S. dollar and may keep further pressure on silver prices in the short term. However, if oil prices continue to ease from the resistance of $120 and U.S. Treasury yields drop further, it will likely provide some support in silver.
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See all Silver forecastsUS Dollar Index Faces Key Support at 100.50
The U.S. dollar index drops in October after marking a high at 102.945. The index now consolidates near the support zone of 101.80 as seen in the daily chart below.
This correction remains within the bullish structure and does not damage the outlook. The RSI has also reached the midline on the daily chart as the US dollar index corrects towards the 101.80 support zone.
But a break below the 101.50 level will likely open the way for further drop towards the 100.50 area.
The daily chart for the US dollar index shows the formation of V-shaped recovery in February and March 2026. The index also formed double bottom patterns in April and May. Then the index formed another double bottom pattern in August and September.
This bullish structure suggests a positive outlook and rally towards the 104 area. But the index will likely continue to move lower if the US dollar index breaks below 100.50. The support at 100.50 is also defined by the 50-day SMA.
The 4-hour chart for the US dollar index also shows that the correction in the index has been constructive so far. The chart shows that the index is trying to form rounding bottom pattern. But the index must hold 101.30 to remain positive.
Silver Price Forecast: The Key Support at $50
Despite the correction in U.S. dollar index, silver price continued to drop lower. The price closed below $55 last week. The chart below shows that the price is now approaching the green zone near $50. This green support zone remains between $45 and $50. As long as the silver price remains above this range, it will likely form a bottom and surge higher. The key resistance in silver now remains $60.
Silver has formed the inverted head and shoulders with the head in September 2022 and shoulders in October 2021 and October 2023. This pattern suggests bullish price action. This means that the correction in silver may provide good support for investors in the long term.
The importance of $50 is also observed on the weekly chart. The chart shows that the price is forming falling wedge pattern. When the rally from October 2025 towards the January 2026 high is measured, the overall correction within the falling wedge forms bullish structure.
The continuous weekly drop in silver from $72 suggests that the price may continue to drop to the $48 to $50 area. This support is defined by lower boundary of the falling wedge pattern.
If the price rebounds from $50 and breaks $60, it will likely confirm a bottom. This confirmation may likely set the rally to $72. A break above $72 may push silver to $90. For silver prices to produce a bottom, the US dollar index must produce a high. If the US dollar index breaks below 100.50, it will likely increase the likelihood of bottom in silver.
What to Watch Next
The interest rate decision by the Fed on 28 October will be the key test for silver prices. This decision will provide further clues about the guidance on interest rates in December. A strong focus on inflation may support the US dollar and keep the silver price under pressure.
Moreover, the surge in Brent oil last week near $120 also fuels the expectation of higher inflation. These expectations may keep the expectation of rate hike in December. The correction in oil prices and US Treasury yields may ease the pressure on silver prices.
Silver is now approaching the major support zone of $48-$50. A rebound from this support zone may trigger a rally in silver prices back to $60. A break above $60 will open the way for a move to $72. The market may watch the US dollar movements near 100.50. A break below 100.50 will suggest a negative trend in the index which may fuel a rally in silver prices from the support zones. In my view, if the US dollar breaks 100.50 and silver prices recover above $60, it will increase the expectations of major bottom in the silver market.
Read more: Gold Tests $4,000 and Silver Remains Under Pressure as Oil Surges