Silver (XAG) Forecast: PCE Rally Fails as $60.84 Retracement Comes Under Pressure

Silver Sold the PCE Bounce Right Back Into the Retracement

Spot Silver (XAGUSD) took the softer PCE report higher Wednesday and couldn’t keep it. Buyers had the number they wanted. The move still rolled over, turning silver negative with Treasury yields parked close to Tuesday’s highs. The dollar only gave back part of its run.

That puts silver right back on the 50% retracement of its all-time high. Buyers showed up in this area Tuesday. The PCE reaction was supposed to hand them follow-through, and it didn’t. Traders are finding out right now whether there’s anybody aggressive buying under $61.00, or just passive bids sitting below the retracement.

At 14:24 GMT, Spot Silver is trading at $60.84, down $0.64 or -1.04%. It traded from $60.57 to $61.73.

Daily Spot Silver (XAGUSD) Technical Analysis

Spot Silver is testing the 50% retracement of its all-time high at $60.84 after failing to hold the PCE-driven rally. The main trend remains down according to the daily swing chart. A trade through the lower top at $67.55 will change the main trend to up. A trade through Tuesday’s low at $60.30 will signal a resumption of the downtrend.

The $61.04 level is the first resistance level above the market. Wednesday’s high at $61.73 is only a high at this point. It does not establish a new top or change the swing-chart structure.

The 50-day moving average at $63.93 is the short-term resistance and trend indicator. Silver is trading below it.

Silver Had the Soft Core Number and Sold Off Anyway

Core PCE came in under the forecast, and silver still couldn’t make it stick. Core rose 3.0% year over year in August. Economists were looking for 3.3%, the same as July’s pace. Headline slowed to 3.4% from 3.7%.

That took some of the inflation pressure out of the rate trade. Silver’s first move was exactly what buyers wanted to see.

Then it rolled. The FedWatch odds on an October hike dropped to 34.9% from 49.1% Tuesday. A week ago they sat at 70.9%. That’s a serious repricing in a matter of days, however, it didn’t produce buying that lasted.

The early pop was a reaction to lower hike odds. The reversal is the tell. One softer inflation report isn’t enough to repair the damage from last week’s selloff. I’m looking at Friday’s Non-Farm Payrolls report as the next real shot at moving the rate trade.

The 10-Year Didn’t Give Silver Enough to Work With

The 10-Year U.S. Treasury yield barely gave any ground. It’s near 5.26%, a few basis points off Tuesday’s 5.29% high. It eased after PCE without breaking down. The 5.04% breakout level and the 50-day moving average near 4.81% are still well under it.

Bond traders are still pricing inflation risk and heavy Treasury supply. They’re also leaving room for the Fed to have more work to do after October, even with the next move pushed back.

That’s where the silver bounce ran into trouble. Metals traders wanted a bond rally out of this report. The 10-Year stayed up near its high instead, and sellers were waiting.

The Dollar Pulled Back Without Giving Up Its Breakout

The U.S. Dollar Index hit 101.47 Wednesday after reaching 101.61 Tuesday. It slipped toward 101.23 after PCE. The broader move is still in place, with the index holding above the 100.56 breakout level. Its 50-day moving average is down near 99.91.

Dollar buyers are taking some profit after a fast run higher. They haven’t left the building. Silver’s rebounds keep running into a currency market that still favors the greenback, and the greenback is still trying to print new highs.

Friday’s Jobs Report Gets the Last Word on October

ADP came in stronger than expected. Private employers added 90,000 jobs in September against a 68,000 estimate. That’s not enough to settle the Fed debate, however, the hawks walk into Friday with an argument they didn’t have Tuesday.

PCE moved the October debate. The bigger question is untouched, which is whether inflation and hiring are both cooling enough for the Fed to pause. ADP didn’t help that case.

What to Watch

Friday’s jobs report is the next catalyst. PCE cut October hike odds, but it did not pull the 10-Year meaningfully away from its high. Silver needs payrolls to finish the rate-relief trade.

A weaker jobs number could pressure Treasury yields and bring buyers back through $61.04. A firm report would keep the rate trade intact and leave Tuesday’s $60.30 low exposed.

The main trend remains down on the daily swing chart. Silver failed at $61.73 after PCE and was back on the 50% retracement at $60.84 by 14:24 GMT. Buyers defended this area Tuesday; a break through $60.30 would show they could not do it twice.

More Information in our Economic Calendar.