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Silver Price Forecast: XAG/USD Fundamentals Provide Hope to the Bulls

Silver Price Forecast: XAG/USD Fundamentals Provide Hope to the Bulls

Tammy Da Costa, Analyst

Silver (XAG/USD) outlook:

  • Silver bullish breakout confirmed after breaking above descending trendline
  • CCI suggests that Silver may be overbought
  • EMA provides additional resistance
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Silver Advances as Dollar Takes Strain

The ongoing battle to contain the spread of the Coronavirus in the US, combined with dismal retail sales data, weighed heavy on the USD ahead of the FOMC decision, providing a catalyst for price action.

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However, the bullish momentum prevailed after Federal Reserve Chair, Jerome Powell announced the Fed’s commitment to maintain near zero interest rates whilst continuing to provide Quantitative Easing until there is “substantial further progress” in the US economic recovery. The ‘wait and see’ approach appeared to have increased the demand for Gold, Silver and other safe-haven assets as the size of the fiscal stimulus package remains a mystery.

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Silver (XAG/USD) Technical Analysis

After breaking above the triangle pattern that encapsulated price action since August, bulls have run into a wall of resistance formed by the 50% Fibonacci retracement level plotted between the August 2020 high and September 2020 low. These levels have continued to provide both support and resistance for XAG/USD, holding both bulls and bears at bay. Meanwhile, the Commodity Channel Index (CCI) is above the 100 threshold on both the monthly and the daily chart, a potential indication that the precious metal may be oversold. However, as long as prices remain above the 10-period Exponential Moving Average, the bullish momentum may persist.

Silver (XAG/USD) Daily Chart

Silver Daily Chart

Chart prepared by Tammy Da Costa, IG

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Silver (XAG/USD Monthly Chart

Silver Monthly Chart

Chart prepared by Tammy Da Costa, IG

Silver Sentiment Remains in Favor of the Bulls

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At the time of writing, IG Client Sentiment shows 87% of retail traders net-long with the ratio of traders long to short at 6.41 to 1. We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Silver prices may continue to fall.

Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current Silver price trend may soon reverse higher despite the fact traders remain net-long.

--- Written by Tammy Da Costa, Market Writer for DailyFX.com

Contact and follow Tammy on Twitter: @Tams707

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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