- Silver saw an early rally during Thursday's trading session, although it encountered resistance as it approached the crucial $22.50 mark, a key level from a technical analysis perspective.
- This resistance coincided with a surprising increase in the US Consumer Price Index (CPI), suggesting that the Federal Reserve may need to maintain a tighter monetary policy for an extended period, as they have previously indicated.
Looking beneath the surface, the $22 level holds significant importance as a support level, where buyers are expected to step in. If this level is breached, there is a possibility of a drop to the $21 level, which acted as a bounce point earlier. Despite the recent rally, it's essential to remember the substantial selloff that occurred not long ago, which may invite sellers back into the market. “Market memory” is strong in this market, and I believe that is part of what we are seeing during the day.
Breaking above the $22 resistance is a challenging task, especially with the 50-day Exponential Moving Average hovering nearby, likely to create additional obstacles. While a reversal beyond the 50-day EMA could open the door to a potential uptrend, it remains an unlikely scenario in the current context. Afterall, this is a market that makes a lot of moves due to the interest rate markets in the USA, as there is a strong negative correlation between the two markets. The rising yields could kick off a significant drop.
Be Cautious
The silver market exhibits a negative correlation with the US dollar, and rising interest rates in the United States are adding downward pressure on silver prices. Therefore, it's reasonable to anticipate a return to lower price levels in the near term. Should silver dip below the $21 support, it could trigger a sharp decline, possibly targeting the $20 level.
In the end, silver faces technical challenges as it attempts to surpass the $22.50 resistance, compounded by the unexpected CPI surge and the potential need for the Federal Reserve to maintain a tighter monetary stance. A return to lower price levels is increasingly likely, driven by the negative correlation with the US dollar and the impact of rising interest rates. Traders should exercise caution and prudence in managing their positions due to the expected choppy volatility in the silver market.
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