Silver Should Be Trading at $13.95
- Silver prices are sluggish but have declined to our advantage with the overall trend remaining bearish below $14.40.
- From a macro fundamental perspective, I see little reason to change my bias as most of the U.S. and European macro data sets keep on beating expectations.
The better than expected economic data lowers the demand to hold silver as a safe haven and routes capital to stock markets, thereby capitalizing on the better than expected economic growth. The better economic data also increases the likelihood of a stronger USD, which is bad for silver prices. For now I see it as a matter of ‘when’, rather than ‘if’ we get a fresh 2015 low for silver. I am happy to hold this view as long as prices remain below $14.40.
Gold as an example traded lower on Friday and using linear regression over the last 6 months we are able to conclude that Silver prices should be trading near $13.95. Using a whole years’ worth of data suggests that silver should be trading at $13.88, with that figure set to $12.99 when using 2 years’ worth of data.
Given that silver is trading close to the $14.40 key level, the biggest risk to my bearish silver view is the upcoming ISM Manufacturing, ECB rate meeting, and U.S. Non-farm Payrolls. Soft U.S. data may trigger a reversal, while the ECB meeting may trigger a general reversal in the USD as traders book profits in EURUSD. In the long run the outlook for silver remains bearish.
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The November 20 high of $14.40 is capping price and traders will most likely short in the $14.14 to $14.40 range with stops above $14.40. A successful reversal will most likely take price to $13.80 and then $13.50 in the long run.
Created with Marketscope/Trading Station II; prepared by Alejandro Zambrano
--- Written by Alejandro Zambrano, Market Analyst for DailyFX.com
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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.