Silver (XAG) Forecast: Silver Bounces as Dollar Fails at Seven-Week High

Spot Silver Found Its Bid When the Dollar Lost Momentum

Silver did not need the dollar to collapse Friday. It needed the dollar to stop climbing. That happened after the dollar index pushed to its highest level since July 30 and then failed to hold the bid. The DXY finished the day down. Silver ran $2.08 from the session low to the high and settled higher. That kind of response to a move the currency market barely noticed tells you the short side was more crowded than it looked.

Spot Silver (XAGUSD) settled at $66.26 on Friday, up $1.03 or 1.58%. The session high was $67.34 and the low was $65.26. The U.S. Dollar Index settled at 100.215, down 0.023 or 0.02%.

Daily Spot Silver (XAGUSD) Technical Analysis

Spot Silver settled higher for a second session on Friday, but off its high. The main trend is down according to the daily swing chart, however, the minor trend turned up on Thursday, leading to a change in momentum to the upside. Supporting the upward momentum is the close over the 50-day moving average at $62.97.

A trade through the swing bottom at $62.31 will signal a resumption of the downtrend. The main trend will turn up on a trade through the September 9 main top at $68.33.

The intermediate range is $54.78 to $71.18. Its retracement zone at $62.98 to $61.04 is support. The zone, especially the upper or 50% level at $62.98, has been tested several times over the past six sessions, including the new swing bottom at $62.31 on September 16.

Two short-term ranges have formed between $68.33 and $62.31 and between $71.18 and $62.31. They created 50% levels at $65.32 and $66.75, respectively. On Friday, the market surged through both 50% levels to $67.34 before backing down.

The Dollar Controlled the Morning and Then Lost It

The dollar index opened Friday pushing toward 100.56 and silver sellers pressed the metal straight to $65.26. The relationship was clean in the early hours. Dollar ticks higher, silver ticks lower. The greenback had already spent the week at seven-week highs with the 10-year yield near 5% and the Fed’s rate hike sitting behind it. Friday’s early push looked like the pressure was not finished.

Then the dollar rolled over from 100.564 to 100.165. It did not collapse. It failed to follow through after making a new high for the move. Silver buyers stepped in as the offers thinned out, and the metal ran through $66, through $67 and touched $67.34 before pulling back into the close.

From the low at $65.26 to the high at $67.34, silver covered $2.08 in one session on a currency move the DXY chart barely shows. The dollar did not break. It stalled. Silver treated that stall like a green light. Late in the day, the dollar stopped slipping near 100.22. Silver gave back part of the rally, but a $66.26 close was still a long way from the morning low.

The Broader Pressure Was Still There and Silver Rallied Anyway

The dollar finished near a seven-week high. The 10-year yield closed near 5%. The Fed raised rates three days ago and left another move on the table. None of that went away Friday. Silver found buyers regardless.

That is what made Friday’s session worth more than a routine bounce. The usual headwinds were all in place. Yields elevated. Dollar firm. Policy tightening. Silver still ran $2 off its low and settled higher by more than $1. Buyers did not wait for the bearish case to disappear.

They waited for it to stop getting worse. The dollar’s inability to extend Friday’s early high was all they needed. The bears who were pressing silver below $65.50 in the morning spent the afternoon watching the trade move against them while every macro argument they had was still technically intact.

What to Watch

The dollar is the only screen that matters for silver right now. A sustained push above Friday’s 100.564 high puts the pressure back on the metal and tests whether buyers will defend the ground they gained. Another failure to extend the dollar rally and silver has room to build on Friday’s move toward $67.34 and the main top at $68.33.

The bias has shifted to the upside with the minor trend change and silver trading above the 50-day moving average at $62.97. The counter-trend rally is real and it cleared both 50% levels at $65.32 and $66.75 on Friday before pulling back. A sustained hold above $66.75 strengthens the case for a run at $68.33 and that is the level where the main trend changes to up and the entire post-Fed selloff is officially reversed.

On the downside, $65.32 is where the momentum weakens. A break through it opens a correction back to the support cluster at $62.98 to $62.97. That zone has held every test for six sessions. Losing it changes the conversation entirely with $61.04 to $60.83 as the next target and the two-day rally reclassified as short covering that ran out of buyers.

More Information in our Economic Calendar.