Silver: Key break nears as payrolls loom large

• Silver trapped between key support and resistance ahead of payrolls
• Momentum signals favour bullish bias, but time is running out
• Breakout could target $32.18 or $33.10, failure risks $29.66 retest

Overview

Silver hasn’t been particularly correlated with any major asset class over the past month, not even gold, suggesting this could be an environment where price signals hold more weight than other factors. Currently wedged between downtrend resistance and uptrend support, and with the November non-farm payrolls release looming, a decisive move may soon provide medium-term directional clues.

Time ticking for bullish breakout

Silver has rebounded strongly since bottoming at $29.66 in late November, climbing within an uptrend to retest downtrend resistance established earlier this month. With four failures so far – Thursday’s dragonfly doji not included – the window for a bullish breakout looks to be narrowing before the uptrend itself comes under threat.

From a momentum standpoint, RSI (14) is trending higher, while MACD has crossed over from below, reinforcing the bullish bias. This supports a preference for buying dips or topside breaks in the near term.

Source: TradingView

If the price were to break and hold above the downtrend, one setup would be to buy with a tight stop beneath targeting a push towards either $32.18 or $33.10, two horizontal levels that acted as both support and resistance in the recent past.

While the 50-day moving average is located just above the downtrend at $31.71, the price has a chequered track record for respecting the level, meaning it should be monitored but not an impediment for longs.

Alternatively, if the price were to reverse lower and break uptrend support, another option would be to sell with a tight stop above the uptrend for protection. $29.66 is one potential target with the 200-day moving average and $29.10 the next after that.

Pondering payrolls

While silver hasn’t shown a meaningful relationship with the US dollar or Treasury yields recently, Friday’s payrolls report is a pivotal macro event that could shift expectations for both. Given silver is priced in USD and offers no yield, it remains relevant for traders.

With markets pricing a 70% chance of a 25bps Fed rate cut later this month, even a slight uptick in unemployment from 4.1% could create a supportive backdrop for risk assets like silver. However, a hot report, featuring stronger payroll growth and a surprise drop in unemployment, could bolster the US dollar and lift interest rate expectations, adding downside pressure to silver prices.

-- Written by David Scutt

Follow David on Twitter @scutty