Asian Open: Is silver ready to drop?

Since struggling to reclaim $25, momentum on silver has realigned with its bearish trend and Friday’s bearish engulfing candle suggests it could be close to extending its bearish move.

Commodities 12

Asian Futures:

  • Australia's ASX 200 futures are down -28 points (-0.38%), the cash market is currently estimated to open at 7,378.60
  • Japan's Nikkei 225 futures are down -220 points (-0.73%), the cash market is currently estimated to open at 30,161.84
  • Hong Kong's Hang Seng futures are down -178 points (-0.68%), the cash market is currently estimated to open at 26,027.91

UK and Europe:

  • UK's FTSE 100 index rose 4.99 points (0.07%) to close at 7,029.20
  • Europe's  Euro STOXX 50 index fell -6.76 points (-0.16%) to close at 4,170.35
  • Germany's DAX index fell -13.34 points (-0.09%) to close at 15,609.81
  • France's CAC 40 index fell -20.95 points (-0.31%) to close at 6,663.77

Friday US Close:

  • The Dow Jones Industrial fell -271.68 points (-0.78%) to close at 34,607.72
  • The S&P 500 index fell -34.7 points (-0.78%) to close at 4,458.58
  • The Nasdaq 100 index fell -120.299 points (-0.77%) to close at 15,440.75

Indices: ASX200 cautiously probes resistance

The ASX 200 posted a minor gain on Friday to see prices probe the lower bounds of the 7430 – 7447 resistance zone. This was not completely unexpected, given its tendency to post a gain following a -2 standard deviation day and that Asian equities rallied on Friday. The 50-day eMA is acting as resistance and Friday’s small bullish candle shows compression is underway, so a break beneath Thursdays low assumes bearish continuation.

Japan’s equity markets finished on a strong note with the Nikkei rising to a 6-month high, above 30k and closing in on the February high. Whilst the reward to risk is unfavourable at current levels due to the Feb high, but we suspect an eventual break above it appears likely.

The Hang Seng index rose for a 3rd week yet the 200-week eMA is capping as resistance at 26,650. We therefore have a bearish bias over the near-term whilst it continues to act as resistance.

Forex: DXY finds support

Month to date, the Australian and New Zealand dollars are the strongest currencies with the British pound coming in third. The Canadian dollar and Swiss franc are the weakest.

The US dollar index (DXY) fell to a 4-day low on Friday yet found support at 92.30 (a level we’ve been waiting for to be respected) and closed above the 50-day eMA for a 4th session. As it previously broken above a bearish trendline after rallying from its 200-day eMA, our bias remains bullish over the near-term with 93.19 being its next target.

GBP/USD printed a double top at 1.3900 on Friday (and a bearish pinbar) after weak GDP data highlighted how the rise of Delta has taken the wind out of the post-reopening recovery. The estimated 3-month GDP fell to 3.6% from 4.8% previously, and down to 7.5% YoY compared with 15.2% previously.

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From the Weekly COT Report (Commitment of Traders)

From Tuesday 7th September 2021:

  • Traders trimmed net-long exposure to the US dollar by US -$0.42 billion, taking bullish exposure to +$10.26 billion according to IMM’s calculations.
  • Large speculators were their most bearish on the Australian dollar since October 2018 after increasing net-short exposure by 10.4k contracts. Interestingly, this marked the net-short low at the time and prices have rallied for two weeks suggesting short-covering is at play.
  • Net-long exposure to euro futures were increased by 15.8k contracts.
  • Traders were short on the British pound for a third week, and at their most bearish level since August 2020 and gross longs were trimmed for a fourth consecutive week.

Commodities: Metals diverge

A bearish engulfing / outside day formed on spot silver prices on Friday. The trend on the daily chart remains bearish since topping out in May and the 50-day eMA continues to cap as resistance. As prices broke below a retracement line last week and respected it as resistance on Friday suggests prices could be ready to drop lower. Our bias remains bearish below 25 although the 24.40 high could also be used to fine tune risk management. Next support resides around 23.0.

Gold prices are struggling to recover or rise above 1800, where the 20, 100 and 200-day eMA’s are capping as resistance. A break below 1780 assumes its next leg lower.

Copper prices rallied nearly 4% on Friday during its most bullish session in 7-weeks. Strong inflation data from China, increased demand and tight supply are just some of the reasons for the rise in base metals. A head and shoulders pattern has now formed on the daily chart which would be confirmed with a break above Friday’s high.

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