Silver (XAG) Forecast: Bulls at Crossroads – Defend $77.05 or Fall to $73.24 Trendline

Silver Plunges from Near Record High Attempt as Key Support Zone Tested

Spot Silver (XAGUSD) is sharply lower on Wednesday after a rally to $82.77 fell short of the all-time high at $84.03. The subsequent reversal has put the market back inside the key retracement zone at $78.70 to $77.05. As I said in Tuesday’s report, this area is controlling the near-term direction of the market.

Look for the upside bias to continue on a sustained move over $78.70 and for a downside bias on a sustained move under $77.05.

At 14:44 GMT, XAGUSD is trading $77.37, down $3.87 or -4.77%.

Technical Analysis: Closing Price Reversal Top Stalls Rally

The main trend is up according to the daily swing chart, however, the formation of the closing price reversal top at $84.03 has temporarily stalled the rally. This reversal top has not been confirmed yet. A trade through $77.07 will confirm the chart pattern. This could lead to a sharp break with targets at $64.79 to $60.25.

The trendline from the $48.64 bottom on November 21 also comes into play. Today, the trendline is at $73.24 so it could serve as support and protection for the swing bottom at $70.07.

Downside Progression: Multiple Support Levels at Risk

Let’s look at the potential downside progression from the top down. Today’s high at $82.77 is lower than the previous top at $84.03. Selling pressure has taken out 61.8% support at $78.70 and the market is now testing 50% support at $77.05.

If $77.05 support fails to hold, selling pressure can accelerate into the trendline at $73.24. Buyers could come in on the first test of the trendline, but if it fails, selling pressure will resume with a pivot at $72.41 the last potential support before the $70.07 main bottom.

The trend turns down and the short-term bias shifts to the downside if $70.07 is taken out with conviction. This could lead to an even steeper decline.

Bulls Need Strong Response to Revive Rally

In order for the rally to resume today, buyers have to step in at $77.05 with enough power to drive the market back above $78.70. The buying is going to have to continue to strengthen throughout the session in order to drive the market into the $82.77 to $84.03 area.

Fundamental Drivers: Profit-Taking and Positioning Ahead of NFP

Fundamentally, we have a clash between short-term and long-term factors with the short-term outlook winning today. The short-term is being driven by profit-taking ahead of Friday’s Non-Farm Payrolls report, which will give us more clues as to the timing of the next Fed rate cut. This is creating enough uncertainty to encourage some bulls to lighten up on the long side.

Additionally, buyers who came in on Monday due to safe-haven demand may have decided to book profits as the uncertainty over the situation in Venezuela is lifted. Finally, the higher margins imposed by the CME two weeks ago may be keeping leveraged speculators on the sidelines. They were some of the major players driving prices higher late last year.

Market Outlook: Critical $77.05 Level Determines Next Move

Looking ahead, today’s move into the close will be determined by trader reaction to $77.05 and $78.70. With the intraday bias currently down, watch for a steep decline under $77.05 to lead to an eventual test of the trendline, currently at $73.24.

More Information in our Friday’s Non-Farm Payrolls report.