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Silver Prices Forecast: XAG/USD Slumps Amid Dollar Surge, Rate Cut Debates

By:
James Hyerczyk
Published: Jan 16, 2024, 09:17 GMT+00:00

US Dollar's 10-day peak and Fed's rate cut prospects dim silver's global appeal amidst economic data surprises.

Silver Prices Forecast

In this article:

Key Points

  • Silver drops with rising dollar and Treasury yields.
  • Speculations of Fed rate cuts fuel market uncertainty.
  • ECB reluctance on rate cuts adds to bearish outlook.

Silver Under Siege

Silver markets were in a pinch this Tuesday, caught in the crosshairs of a strengthening U.S. dollar and soaring Treasury yields. The spotlight is now on the upcoming Federal Reserve officials’ speeches, with traders on tenterhooks for clues on rate cut plans. As of 08:45 GMT, silver (XAG/USD) traded at $23.07, marking a 0.64% drop.

Dollar and Treasury Yields Influence

The U.S. dollar index hit a 10-day high, tarnishing silver’s allure for other currency holders. U.S. 10-year Treasury yields also breached the 4% threshold. This dollar rally is attributed to the market mulling over the Federal Reserve’s potential rate cuts, amidst a data-heavy week that could sway global central bank decisions.

Fed Rate Cut Speculations

Expectations for imminent Fed rate cuts, once dim, have been rekindled by surprising December U.S. producer price data. Market odds now lean towards a 70% chance of a 25 basis point cut in March, a rise from last week’s 63%. Predictions now include total rate cuts of 160 basis points for the year, up from 140.

Analysts Wary of Aggressive Cuts

Despite bullish market sentiments, analysts exercise caution. They point to the sturdy labor market and waning inflation as potential brakes on quick rate cuts. This cautious stance could bolster the dollar, possibly leading to higher short-term interest rates if market expectations shift.

Fed Speeches and Market Outlook

Investor attention is fixated on Federal Reserve speeches, notably Christopher Waller’s upcoming address. Waller’s previous dovish comments had spurred market rallies, and his latest insights could influence March rate cut expectations, impacting U.S. bond yields and dollar movements.

Short-Term Forecast: Bearish Outlook

The current economic landscape paints a bearish short-term picture for silver. The possibility of central banks resisting aggressive rate cuts, coupled with a firm dollar and rising Treasury yields, hints at potential headwinds for silver prices.

Technical Analysis

Daily Silver (XAG/USD)

Analyzing Silver (XAG/USD), currently at $23.05, shows a decline from the previous day’s close of $23.22. Positioned beneath both the 200-day and 50-day moving averages, at $23.61 and $23.63, it signals bearish tendencies.

The minor top, along with these moving averages, has formed a significant ceiling, likely to rebuff initial buying attempts. However, overtaking this area could pivot the momentum upwards, potentially leading to an acceleration to the upside.

The asset faces immediate resistance at $23.55, with a more formidable barrier at $24.50. Meanwhile, the minor support at $22.23 offers a buffer against further drops.

Overall, the market sentiment for Silver is currently bearish, but overcoming this major ceiling could significantly alter the outlook.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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