Silver Prices Forecast: Strong Bias to Upside Ahead of CPI Report

Overview

Silver futures are firm on Wednesday, driven by recent currency volatility and the anticipation of upcoming U.S. inflation data. The U.S. dollar’s weakness against major currencies, combined with market anticipation around the Federal Reserve’s next moves, sets a conducive environment for silver prices to rise.

At 11:12 GMT, XAG/USD is trading $28.80, up $0.18 or +0.65%.

Dollar Weakness and Silver Support

The U.S. dollar hit a one-month low against the euro and dropped versus the yen, highlighting increased market concerns ahead of the key inflation report. An unexpected rise in U.S. producer prices in April further pressured the dollar, potentially supporting silver as an alternative asset. The dollar index’s 0.20% dip to 104.80 signals an easing dollar, often a bullish indicator for precious metals.

Key Inflation Data

Wednesday’s core consumer price index (CPI) report is crucial. Expectations point to a 0.3% month-on-month increase in April, down from 0.4% in March. Although still elevated, a lower-than-expected CPI could reduce pressure on the Federal Reserve to maintain aggressive rate hikes, indirectly benefiting silver prices.

Market Sentiment and Rate Expectations

Analysts, including Julien Lafargue from Barclays Private Bank, suggest that while inflation remains high, a slight reduction might signify a positive trend. This could encourage the Fed to consider rate cuts later in the year. Roberto Mialich from UniCredit expects the euro to reach 1.10 against the dollar, predicting more rate cuts than the market currently anticipates. This sentiment supports a bullish outlook for silver, as lower interest rates typically enhance the appeal of non-yielding assets like silver.

Global Currency Movements

The yen’s rise against the dollar, despite nearing historic lows, and the euro’s modest gains, reflect a broader trend of dollar weakening. This environment enhances silver’s attractiveness as a hedge. Additionally, interventions by the Bank of Japan and the Ministry of Finance indicate potential volatility, which often benefits safe-haven assets like silver.

Short-Term Forecast

Given the current market conditions and financial data, the short-term outlook for silver is bullish. The weakening dollar, critical upcoming inflation data, and expectations of Federal Reserve rate cuts all create a favorable environment for silver prices.

Traders should be prepared for a potential surge in silver as the market reacts to the CPI report and ongoing currency fluctuations. Monitoring these developments closely will be essential for capitalizing on short-term opportunities in the silver market.

Technical Analysis

Silver (XAG/USD) is grinding higher on Wednesday, suggesting traders are waiting for fresh news to fuel the next volatile move. Nonetheless, the market is showing a strong bias to the upside, which puts the April 12 main top at $27.80 squarely on the radar.

Silver prices could weaken on a sustained move under the minor bottom at $27.97. This has the potential to drive prices sharply lower with the 50-day moving average at $26.58 the nearest major support. Since the long-term trend is up, buyers are likely to return on a test of this intermediate support level.