Strong Jobs Report Lifts Rate-Hike Expectations
Spot silver finished slightly higher on Friday after recovering from early session weakness. Most of the early selling was likely tied to Thursday’s minor reversal top from $53.48 to Friday’s low at $51.19.
On Friday, XAGUSD closed at $51.94, up $0.16 or +0.30%.
The catalyst for the early pressure was a stronger-than-expected U.S. non-farm payrolls report. The news boosted expectations that Federal Reserve policy makers could keep interest rates higher for longer, with December rate-hike expectations rising. Treasury yields rose on the news, pulling up the U.S. Dollar.
U.S. 10-year Treasury yields rose after matching the previous day’s low at 4.814%. The potentially bullish development took place inside a long-term retracement zone at 4.865% to 4.747%.
A jump in rate hike expectations combined with firmer U.S. 10-year Treasury yields helped drive the U.S. Dollar to a two-week high at 102.358. This was a test of the 50% to 61.8% retracement levels of the recent break from 102.945 to 101.099 at 102.022 to 102.240.
The impressive employment report, highlighted by the boost in jobs and the drop in the unemployment rate, gives the Fed the room to focus on inflation pressures driven by higher oil prices. Fed funds traders are now pricing in a 78% chance of a 25-basis point rate hike by the central bank in December. This is up from 72.8% shortly before the release of the jobs report.
Friday’s price action indicates that traders may have already shifted their focus from the Democratic victory in Tuesday’s midterm elections to the number of potential rate hikes by the Fed.
Daily Spot Silver (XAGUSD) Technical Analysis
The main trend is down according to the daily swing chart. A trade through $54.63 will change the main trend to up. Taking out the swing bottom at $48.62 will signal a resumption of the downtrend.
The minor trend is also down. A trade through $53.48 will change the minor trend to up.
The longer-term retracement zone is formed by 50% of the all-time high at $60.835 and the 61.8% level at $46.48.
Inside this longer-term retracement zone is an intermediate 50% level at $55.35. The short-term 50% level is at $51.63 and the minor 50% level is at $51.05.
Shortly before the long-term 50% level is the 50-day moving average at $60.02. Well above both indicators is the 200-day moving average at $68.89.
After forming a short support base, spot silver popped on Wednesday, but the follow-through rally died at $53.48 the next session. That minor top formed nearly at the midpoint of the two 50% levels at $51.63 and $55.35.
My work suggests that the first leg up from $48.62 to $53.48 was short-covering. Following a prolonged move down in terms of price and time, the first rally usually is driven by weak short-sellers bailing out. The next retracement is what counts. My focus will be on $51.05. If buyers come in at this price, then they will try to form a secondary higher bottom. If successful, a breakout over the minor swing top at $53.48 will turn the minor trend up, with the main top at $54.63 and the intermediate 50% level at $55.35 the next target area. This is the area that is likely to launch a surge into the 50-day moving average at $60.02.
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My bias is still to the downside, but the strength of my conviction will be determined by trader reaction to $51.05. A sharp break under $51.05 will support my outlook, setting up the possibility of a retest of the main swing bottom at $48.62. If this fails, the selling pressure could extend into $46.48 to $45.55.
A sustained move over $51.05 will signal the return of buyers. Overtaking $51.63 will indicate that the buying is getting stronger. The market will strengthen further if traders start taking out offers around the swing tops at $53.48 and $54.63. This could create a wave of strong momentum heading into $55.35, which I think could be the trigger point for an acceleration to the upside.
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