Silver price has edged higher for the second session in a row even a strong US dollar continues to curb its gains. After the Chinese industrial data, the focus is now on the July Fed meeting.
Fundamentals
Data released earlier on Wednesday showed that Chinese industrial profits rose by 0.80% in June on a year-over-year basis after declining by 6.50% in the previous month.The industrial uses of silver account for over 50% of its demand. With China being the leading consumer of industrial metals, the positive data has eased concerns over the impact of slowed global economic growth on industrial activities.
Nonetheless, a strong US dollar has continued to weigh on silver price. Investors’ focus is particularly on the Fed interest rate decision set for release later on Wednesday. Analysts expect the central bank to increase its benchmark rate by 75 basis points; having already hiked by 150 basis points since March.
The Fed has been more aggressive compared to other central banks as it strives to ease the heightened inflationary pressures. Besides, the recession fears have more investors holding on to the greenback; which is a conventional safe haven.
Silver price technical analysis
Silver price has been range-bound since the beginning of the week as investors await further cues from the Fed interest rate decision set for release later in Wednesday. Since dropping from 22.50 in early June, the precious metal has dropped by over 17%. Indeed, the previously steady support level of 20 has been evasive over the past three weeks.
A look at the technical indicators, coupled with the fundamentals, signals that the downtrend may persist in the short term. As seen on a four-hour chart, silver price remains below the 25 and 50-day exponential moving averages.
Besides, the formation of a rising wedge pattern further supports the bearish outlook. This formation usually signals that traders are still deciding on where to take the financial asset next. It has formed upon the consolidation of silver price between the resistance line and upward sloping support line.
Indeed, a look at the two lines highlighted in purple shows that the support line slope is steeper compared to that of the resistance line. This is an indication that there are more higher lows than higher lows. Seeing that the pattern has formed within a downtrend, the asset’s down move may continue in the short term.
In particular, the range between the 50-day EMA at 18.73 and the support level of 18.34 will remain one to watch. Above that level, 18.89 may be a critical resistance level.
On the flip side, a super-sized rate hike by the Fed and subsequent strengthening of the US dollar may pull the metal to 18.17. Even so, the psychological level of 18.00 may offer steady support to the commodity in the short term based on the view that the market has already priced in the worst case scenario with regards to Fed’s hawkish stance.
