Silver “Bullish” in short term, Eyes FOMC January meeting.
Silver on Friday closed at $20.13 / ounce just ahead of a key resistance level after a rapid surge in the US session amid poor non-farm payrolls data. The metal is likely to face immediate resistance at $20.29 which is 38.2% fib level and then $20.82, a very crucial 50% fib level and 100 DMA.
On downside support is seen around $19.63 a break and daily close below this level would be targeting $18.62, low of 31st Dec 2013.
Swing analysis shows that Silver is poised for Higher High after printing Higher Low on daily chart, have a look at given below chart;
If the metal breaks $20.32, swing high of previous upward wave, it would confirm bullish reversal targeting $20.82 or even above that level.
If we look at a little broader picture, a double bottom pattern is obvious on weekly chart as shown below;
The neckline of this double bottom price pattern is at $25.08 that needs to be broken in order to print further upward price movement towards $32.00, near term fundamentals however do not justify this scenario. The completion of this double bottom pattern could only be possible if Federal Reserve’s policy of scaling back stimulus yields negative outcomes and affects US growth or some other change in fundamentals that significantly boosts silver’s demand.
If we apply the Elliott Wave Theory on recent price movement in XAG/USD, we would get something like this;
Yes the price is currently in the completion phase of last correction wave as per EW pattern and a reversal is likely from current levels.
If we look at the above monthly chart, the price has also formed bullish ABCD pattern which also indicates reversal from existing levels. So technically we have many reasons to have a bullish bias on silver in short-term.
Labor department on Friday said that jobless rate in the US has slumped to 6.7% that is very near to FOMC forward guidance 6.5% target. Government employment report, however, revealed that the economy could only create 74,000 new jobs, beating the median projection of 197,000 to a great extent. It is pertinent that this worst that expected non-farm payrolls figure can be an outcome of bad weather as many economists believe.
Federal Open Market Committee (FOMC) meeting is scheduled on January 29th. Keeping in view recent ADP report which was very positive, far better than expected jobless rate in December and pace of growth in the third quarter, the committee members may go for yet another tapering in asset purchase program as minutes from their December meeting were very hawkish. If it happens, Silver may once again come under selling pressure challenging double bottom support and eying new multi-year lows.
In conclusion I would say that bias is bullish in short term, however FOMC meeting at the end of January shall be of great interest. More tapering in January would bring precious metal under selling pressure. On the other hand if FOMC decides to abstain from back to back tapering, the pace of ongoing bullish momentum in Silver would definitely increase and the metal may re-visit $23 zone in February.
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