Silver Price Forecast: XAG Pressured by Rising Dollar Amid Rate Hike Worries

Highlights

• Silver prices down as the U.S. dollar surged.
• Investors watch for economic data on interest rates.
• Central banks’ actions influence precious metal demand.

Overview

Silver (XAG) prices faced downward pressure on Tuesday as the U.S. dollar surged, leaving investors eager for upcoming economic data that could shed light on the duration of interest rate hikes aimed at taming persistent inflation. The dollar’s strength was bolstered by a recent Federal Reserve survey, which revealed that U.S. banks tightened credit standards and observed weaker loan demand from both businesses and consumers in the second quarter.

Banks Tightening Standards

The Fed’s quarterly Senior Loan Officer Opinion Survey (SLOOS) offered further insight, indicating that banks are likely to continue tightening their standards throughout 2023, underscoring the impact of rising interest rates on the economy. According to CBA’s Clifton, these stringent lending standards could exacerbate the effects of increasing interest rates and potentially contribute to a U.S. recession later this year.

Silver Closes Out July with Strong Gains

Silver prices rose in July as market participants anticipated an approaching end to the rate-hiking cycle by global central banks, which tends to boost demand for the zero-yielding precious metal. However, the recent rally is encountering technical resistance, and comments from Jerome Powell serve as a reminder that market reactions to soft U.S. data should be approached with caution.

Fed Trying to Avoid Recession

Federal Reserve President Austan Goolsbee commented that the central bank is cautiously balancing the task of bringing down inflation without triggering a recession. The Fed will closely monitor economic data to determine whether further monetary tightening might be necessary in September. Central banks worldwide are adhering to a data-dependent approach as they gauge the speed of the disinflation process.

US Employment Data on Tap

With U.S. employment data set to be released later in the week, traders eagerly await this key marker for potential changes in interest rate expectations from the Federal Reserve. Positive surprises in the data could reignite concerns of additional rate hikes, weighing on silver (XAG) prices, as highlighted by Waterer.

Short-Term Outlook:  Facing Headwinds

In conclusion, silver prices are facing headwinds from a strengthening U.S. dollar and uncertainty surrounding future interest rate decisions. As the market closely monitors economic indicators, traders must remain vigilant for any signs of potential shifts in the precious metal’s trajectory.

Technical Analysis

Silver (XAG) market sentiment appears cautiously bullish in the short term. The 4-hour price of 24.52 is above the 200-4H moving average (23.72), suggesting an upward trend. However, it is below the 50-4H moving average (24.61), indicating resistance to further gains. The 14-4H RSI at 49.60 indicates balanced momentum.

Traders should closely monitor the main resistance area at 25.00-25.27 for potential reversals. The market’s indecision calls for vigilance to assess if the bullish sentiment will persist. Caution is advised given the price’s proximity to the 50-4H moving average resistance level and the support zone