Source: PaxForex Premium Analytics Portal, Fundamental Insight
Traders will have a quiet start to the trading week from an economic calendar perspective. The Peoples Bank of China lowered interest rates again after it surprised markets with a rate cut last week. It attempts to pump liquidity into the financial system to stem the further deterioration in its property sector. While policymakers communicated to markets that they are ready to act, and the government has ample cash resources to deploy, it is unlikely to result in a meaningful stabilization unless followed by other actions. Covid-19 restrictions are the primary driver of the economic slowdown, and unless consumers are free to spend, any additional liquidity will not kickstart the economy.
The European and US trading sessions are free of market-moving events, making an extension of the sell-off on Friday the path of least resistance. The bear market rally lasted four to five weeks and provided a textbook example of a healthy bear market. Traders should expect a reversal of price action since June, which saw the current bear market lows. Financial markets are likely to revisit those lows, and if volume increases during the retest, a breakdown could follow.
Safe-haven like gold and silver joined sold off over the past few weeks as the US Dollar surged and risk-on sentiment accelerated during the bear market rally. A twin reversal of both downside catalysts could propel silver towards the psychological resistance level of $20.00. It would also take price action above its increasingly bullish Ichimoku Kinko Hyo Cloud, supporting more upside. Traders should monitor trading volume during bullish sessions to confirm sustainable upside. The global economy will slow further, and third-quarter GDP could disappoint. Inflation appears anchored and unlikely to deteriorate meaningfully while most central banks tighten monetary policy, favoring a rise in inflation hedges like silver.
The forecast for the XAG/USD is turning slowly bullish as this precious metal corrected into the top end of its horizontal support area. Adding to the bullish outlook is the narrowing Ichimoku Kinko Hyo Cloud with an ascending Senkou Span A and a flat Senkou Span B. The Kijun-sen also drifts higher, and a bullish crossover above the descending Tenkan-sen could spark the next rally. Traders should also monitor the CCI after it plunged into extreme oversold territory. A breakout above -100 will offer the final buy signal for this commodity. Can bulls overpower bears and pressure the XAG/USD into its horizontal resistance area? Subscribe to the PaxForex Daily Fundamental Analysis and earn over 5,000 pips per month.
Should price action for Silver remain inside the or breakout above the 18.550 to 19.400 zone, PaxForex recommends the following trade set-up:
- Timeframe: D1
- Recommendation: Long Position
- Entry Level: Long Position @ 19.000
- Take Profit Zone: 21.850– 22.500
- Stop Loss Level: 18.000
Should price action for Silver breakdown below 18.550, PaxForex recommends the following trade set-up:
- Timeframe: D1
- Recommendation: Short Position
- Entry Level: Short Position @ 18.000
- Take Profit Zone:16.200 – 16.950
- Stop Loss Level: 18.550
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