Silver Under Pressure as Double Top Formation Suggests Further Downside

Market Overview

On Thursday, silver faced significant selling pressure as the U.S. dollar strengthened and 10-year Treasury yields climbed. These developments pushed silver prices down by 3.4%, highlighting the negative correlation between the dollar’s value and precious metals. A rising dollar typically reduces demand for metals like silver as they become more expensive for holders of other currencies. Additionally, increasing Treasury yields tend to lure investors away from non-interest-bearing assets like silver.

While supply constraints could potentially buoy prices, the current strength of the dollar combined with rising yields is acting as a headwind for silver. With markets now focused on upcoming U.S. inflation data, any surprises could further influence silver’s trajectory, particularly with respect to Federal Reserve policy expectations.

Technical Analysis

The daily chart for silver paints a bearish picture, with a double top pattern having been confirmed at recent highs. The price currently hovers around $30.50, and sellers are attempting to keep the price below the key resistance level at $30.793. Failure to overcome this level would suggest continued downward momentum.

If selling pressure persists, support levels at $30.207 and $29.901 will be in focus as potential areas where buyers might attempt to enter. Breaking below these support levels would shift focus towards $29.461 and ultimately $28.638, which aligns with the ascending trendline from August. This trendline could provide significant support, but its breach would open the door to a more substantial bearish move.

The Relative Strength Index (RSI) is currently near 48, suggesting neutral sentiment but with a bearish tilt. A reading below 50 points towards increased selling pressure. Meanwhile, the MACD is displaying negative signals, indicating potential for further declines. The confluence of these indicators highlights the dominance of bearish sentiment for now, with a lack of buying conviction evident until a positive catalyst emerges.

Alternative Scenario

On the upside, a decisive break above the major resistance level at $32.948 could shift the outlook towards bullish momentum. Such a move would invalidate the double top formation, suggesting that buyers have regained control and opening the potential for an extended rally.

A successful breakthrough above $32.948 would bring higher targets into focus and could lead to an accelerated move towards the next significant resistance levels. In this scenario, it would be crucial for buyers to maintain momentum and establish a strong foothold above the broken resistance, thereby creating a potential bullish reversal.

Key Levels Overview

Resistance Levels:

• Resistance 1: 30.793
• Resistance 2: 31.871
• Resistance 3: 32.948

Current Price: 30.500

Support Levels:

• Support 1: 30.207
• Support 2: 29.901
• Support 3: 29.461
• Support 4: 28.638

Key Events to Watch

Market participants should keep a close eye on several key economic events today that could influence silver’s price direction. The first significant event is the U.S. Initial Jobless Claims report, which is expected to show an increase to 230,000 claims. A larger-than-expected number could weaken the dollar, providing temporary support to silver. Conversely, a lower reading would likely strengthen the dollar and apply further downward pressure on silver.

Additionally, the release of U.S. Consumer Price Index (CPI) data for the previous month will be pivotal. This data will provide insight into the current state of inflation in the United States and will be closely scrutinized for implications on future Federal Reserve policy actions. An unexpected uptick in CPI would likely boost the dollar, as it would increase the odds of further rate hikes from the Fed, making it challenging for silver to regain any upside momentum. On the other hand, weaker inflation could provide some relief for silver prices by tempering expectations for additional tightening by the Fed.

Conclusion

Silver is currently facing substantial bearish pressure as it grapples with the negative impact of a strengthening dollar and rising U.S. yields. The formation of a double top on the daily chart points to a bearish bias, with price action suggesting further declines if key support levels give way. Resistance at $30.793 serves as the immediate cap on any potential upward movement, with sustained momentum needed to push prices beyond $32.948 to alter the outlook significantly.

Traders should remain vigilant regarding today’s U.S. inflation data and initial jobless claims report, as these events could have a major impact on silver’s direction. A positive CPI reading could extend the current bearish trend, while disappointing data might offer a reprieve. The RSI and MACD both signal ongoing weakness, reinforcing the view that sellers have the upper hand unless a significant catalyst emerges to change market sentiment.

In summary, silver appears poised for more downside as the combination of technical signals and fundamental headwinds keeps buyers on the sidelines. Any signs of reversal will need confirmation through key resistance breaches, particularly above $32.948, for the bulls to regain control of the market.

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