Silver set for a sharp move, but which direction?
Fawad Razaqzada May 17, 2016 12:50 PM
On the back of today’s US macro data, which have all been stronger than expected, you would expect the dollar to rally. After all, the Consumer Price Index (CPI) rose by 0.4% in April, housing starts jumped 6.6% from a month earlier, industrial production increased 0.7% month-over-month and capacity utilization rose to 75.4 per cent. Yet the dollar has actually weakened while stocks have drifted lower. Buck-denominated precious metals have therefore shone.
When positive data – like those mentioned – fail to underpin the dollar then one has to wonder what actually will. Equally confounding is silver’s ability to bounce back despite forming a bearish-looking pattern on its daily chart yesterday: a long-legged doji candlestick. This candlestick pattern clearly shows indecision as price was unable to make a decisive move in either direction before closing where it had opened. Admittedly, the trading day has not ended yet and a lot could change as we head into the second half of US session.
But if silver were to break above yesterday’s bearish-looking candlestick pattern, this would prove a lot of the existing sellers wrong. If so, it would also mean that silver will break out of its bullish channel or flag pattern to the upside. This would be a further bullish development, which could potentially lead to further follow-up technical buying towards the resistance levels or bullish targets shown on the chart.
However, if the low from yesterday’s candle breaks, then silver would remain inside the channel, potentially paving the way for a more significant drop towards supports such as $16.85, $16.75 or even the key $16.15-$16.35 area.
So, a lot now depends on the direction of the breakout. Traders may wish to wait for this breakout to happen before potentially looking for a trade in the direction of the break. One final word of caution is that the markets have not been trending well recently and we have seen lots of fake breakouts. It may therefore pay to be a bit more patient and wait for confirmation.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.