Silver Set for Sharp Move, but Which Direction
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.