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Silver Prices: To Trade Lower On Strong U.S. Data

Silver Prices: To Trade Lower On Strong U.S. Data

2015-11-25 16:03:00
Alejandro Zambrano, Market Analyst
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Talking Points

  • Silver prices pull back from resistance and maintain their downward trend on U.S. data beating economist consensus expectations
  • News of ECB frontloading their stimulus ahead of the Christmas holiday is also keeping silver prices soft

Technical Outlook

The trend remains bearish below $14.40 and after today’s decline I suspect that we will be able to lower the trend defining level to yesterday’s high of $14.30 on the condition that price reaches Monday’s low of $13.89. On a break to Monday’s low of $13.80 the next support level and profit target in line is $13.50.

I see no reason to change bias so long as silver remains below Thursday’s high of $14.40.

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Low Inflation Pressure – However, Silver Prices Remain Soft

The Fed’s preferred inflation gauge, the PCE Deflator increased by a measly 0.2 percent YoY vs. the Bloomberg News estimate of 0.3 percent. Core PCE increased by 1.3 percent YoY vs. a 1.4 percent estimate. This is hardly what the FED would like to see ahead of a rate increase in December, but silver prices traded lower and are expected to remain soft on the data below beating expectations.

  • U.S. Durable goods ex. transportation printed +0.5% vs. an est. +0.3%
  • Jobless Claims printed 260k vs. an est. 270k
  • Markit US Services PMI printed 56.5 vs. an est. 55.1
  • New Home Sales increased by +10.7% MoM vs. an est. +6.8%.

This raft of much better than expected data is keeping silver prices low as the Dollar gains.

Also lowering the demand of Silver is the news that the ECB will be taking a break in their asset purchasing between December 22 and January 1. Instead they will look to frontload their purchases which has already triggered a higher demand for the Dollar.

Private Investors Are Fighting the Trend

While it’s quite clear according to the macro data and the technical trend that silver prices are and should be heading lower, the average private investor is fighting the trend.

Using the FXCM SSI Index and Gold as a proxy for Silver, we note that for every short position there are 2.95 long positions. This shows that traders are fighting the decline of gold prices, and given the link to silver I would make the assumption that traders are also fighting the decline in silver prices.

The statistics look similar for EURUSD and GBPUSD, showing that traders are net-sellers of USD. This indicates that we should expect lower silver prices in the weeks ahead. You can download our free indicator and read more about the power of the SSI.

Silver Prices: To Trade Lower On Strong U.S. Data

Created with Marketscope/Trading Station II; prepared by Alejandro Zambrano

--- Written by Alejandro Zambrano, Market Analyst for DailyFX.com

Contact and follow Alejandro on Twitter: @AlexFX00

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

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