Silver Price Forecast: Weaker Dollar Boosts Demand Ahead of Fed’s Policy Moves

Highlights

• Silver inches higher as investors await U.S. inflation data and its influence on the Federal Reserve’s policy stance.
• Solid chart support at $22.72, but potential for price drop if inflation remains high.
• Technical posture leans bearish on the daily chart, but intraday charts show potential for bullish momentum.

Overview

Comex silver inched higher on Tuesday as investors eagerly awaited the release of U.S. inflation data, which holds the potential to influence the Federal Reserve’s policy stance. Silver futures have found solid chart support at $22.72, but if inflation remains high, there is a possibility of silver prices dropping below that level to $22.485 and then to $22.185.

All Eyes on US CPI Report

The focal point for this week lies on the U.S. Consumer Price Index (CPI) data scheduled for release on Wednesday. Last week’s Fed minutes revealed that a majority of policymakers anticipated further policy tightening. Higher interest rates typically diminish the appeal of silver, as it does not offer interest payments.

Lower Dollar, Yields Lend Support

The dollar, facing prospects of lower rates, lingered near a two-month low, while benchmark U.S. yields remained close to Monday’s lows at 4.0018%. A weaker dollar makes silver more affordable for holders of foreign currencies. U.S. central bank officials stated on Monday that while the Fed is likely to raise interest rates to combat persistently high inflation, the end of its current monetary tightening cycle is drawing near.

Long-Term Bearish, Short-Term Bullish

The technical posture for the silver market appears bearish on the daily chart, but intraday charts show some promise for bullish traders. However, significant upward price movement may require a major geopolitical event. The recent Labor Department employment report indicated the addition of the fewest jobs in 2-1/2 years in June, yet strong wage growth suggests ongoing tight labor market conditions.

Short-Term Forecast

In conclusion, Comex silver witnessed a modest rise as market participants awaited the U.S. inflation data that could impact the Federal Reserve’s policy decisions. The focus remains on the upcoming CPI release, with the silver market’s technical posture leaning bearish. However, the possibility of bullish momentum exists on intraday charts. The recent employment report pointed to a sluggish job market, while wage growth remained robust.

Technical Analysis

Comex Silver is showing mildly bullish sentiment as the current price sits above both the 200-4H and 50-4H moving averages. With the current price at 23.560, slightly higher than the previous 4-hour close of 23.445, the market is exhibiting modest upward movement. It’s also nearing an overbought reading on the 14-4H RSI, suggesting a potential need for caution.

The main support area is between 22.485 and 22.720, while the main resistance area ranges from 24.225 to 24.475. With the chart indicating plenty of room to the upside, silver could experience a breakout over the 200-4H moving average.