Silver Is Bouncing, but the Rate Trade Has Not Turned
Spot silver found buyers after last week’s break to $55.40, but the early strength is still a counter-trend move. Treasury yields are backing away from their recent high, giving silver room to recover. The dollar has also come off its October top. Neither chart has broken down enough to take the pressure off metals.
At 02:40 GMT, spot silver traded at $57.51, up $0.43 or +0.75%. The market traded between $57.11 and $57.71.
Lower Yields Are Giving Silver a Bid
The U.S. 10-year yield fell from 5.365% to 5.062% early Monday, pulling some pressure off silver near its July low. The yield is still well above its 50-day moving average at 4.941%, so the rate market has not rolled over. Silver needs to take back $58.43 or the move looks like short-covering.
The Dollar Is Softer, Not Weak
The U.S. Dollar Index reached 102.945 last week before slipping back under 102. It traded near 101.85 early Monday. The retreat has helped silver stabilize, but the dollar is still holding above its 50-day moving average at 100.36 and its 200-day moving average at 99.51.
That leaves the dollar with room to find support above 101.58, the recent low. A bounce in the dollar from that area would put the rate trade back in front of silver traders and make it harder for the metal to extend the current recovery.
Silver does not need a collapsing dollar to rally, but it does need the dollar to stop making higher highs. The failure near 102.945 is the first crack in the move. The question for Monday is whether sellers can push the index under last week’s low or whether the pullback attracts dollar buyers.
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See all Silver forecastsFed Traders Are Still Leaning Toward Higher Rates
The October pullback in yields has not changed the rate picture. CME FedWatch showed an 83.9% probability the Fed holds its 3.75% to 4.00% target range at the October 28 meeting. December is the problem for silver. FedWatch showed a 77.3% probability of a move to 4.00% to 4.25% and the market is not ruling out 4.25% to 4.50%.
Silver is fighting that. The yield has weakened for a few sessions, but rate traders still see at least one increase by December. Silver can bounce while yields back away from 5.365%, but the rate market is not giving bulls much room to work with.
Daily Spot Silver (XAGUSD) Technical Analysis
Spot silver is edging higher early Monday after hitting its lowest level since July 17 last week. The main trend is down according to the daily swing chart. A trade through $55.40 will signal a resumption of the downtrend. This could lead to a test of the July bottom at $54.78. This level is a potential trigger point for an acceleration to the downside with $46.48 a major target. The main trend will change to up on a move through $61.46.
The minor range is $61.46 to $55.40. Its 50% level at $58.43 is the level to watch today. Trader reaction to this level is likely to set the tone today. A sustained move over $58.43 will indicate the presence of counter-trend buyers. If the move creates enough upside momentum, traders could make a run at 50% of the all-time high at $60.835 and a pair of main tops at $61.46 and $62.09. These are the last main tops before the 50-day moving average at $63.80.
Daily December Comex Silver Futures Technical Analysis
December Comex silver futures are trading higher early Monday. Traders appear to be trying to build on last week’s technical bounce from the multi-month low at $55.56. This was slightly below the July 17 main bottom at $55.60.
The main trend is down according to the daily swing chart. A trade through $55.56 will signal a resumption of the downtrend with $50.44 to $49.39 the next potential target area. The main trend will change to up on a trade through $61.74.
The minor range is $61.74 to $55.56. Its 50% level at $58.65 is the nearest upside target. Trader reaction to this level will set the tone.
A sustained move over $58.65 will indicate the presence of counter-trend buyers. If this creates enough upside momentum, buyers could try to break out over the two main tops at $61.74 and $62.45. Overtaking these tops could drive the market into a short-term retracement zone at $63.81 to $65.75. Inside this zone is the 50-day moving average at $64.41.
A failure to overcome the pivot will signal the presence of sellers. This could lead to a retest of last week’s low at $55.56.
What to Watch
There is no fresh news driving the early move. The trade is coming from the yield pullback and the dollar’s retreat from last week’s high. If the 10-year yield continues to work lower and the Dollar Index breaks last week’s low at 101.58, silver buyers have a chance to test $58.43 with momentum behind them. A recovery in either market would put the focus back on $55.40.
For spot silver, with the main trend down on the swing chart and the market below the 50-day moving average, my bias is to the downside. I will be watching the reaction to the pivot at $58.43 to determine if seller rejection of the level leads to another round of selling or if a breakout over the pivot leads to a counter-trend rally, thereby weakening my bearish outlook.
For December Comex silver futures, my bias is to the downside, but this outlook will weaken if counter-trend buyers overcome the pivot at $58.65.
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