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Silver Triggers a Head & Shoulders Pattern

Silver Triggers a Head & Shoulders Pattern

2016-02-22 12:39:00
Alejandro Zambrano, Market Analyst

Silver prices are lower today as the U.S. Dollar propels itself higher on a decline in the Euro and Pound Sterling, while stock markets remain high, adding to the pressure on silver prices

Short-Term Bearish

The short-term trend for silver is bearish below the February 19 high of $15.50 and price appears to be heading to the February 8 low of $14.91, with a break to this low generating a slide to the February 5 low of $14.67.

The break to $15.15 also trigged a sell signal based on the ‘Head and Shoulders’ pattern mentioned on Wednesday. The break to the $15.15 ‘neckline’ projects a slide to $14.33.

How Sustainable Is The Decline?

The rise in the Dollar and subsequent slide in silver prices appear to be a late reaction to last week’s better than expected U.S. data, and more gains are to come if the Dollar adjusts to relative interest rates. The stronger dollar is also fuelled by Brexit fears, triggering a strong decline in the GBPUSD. Both of these themes are expected to remain in place this week.

However, silver prices may pick up if stock markets reverse lower.

From beating the consensus estimates last August 2015, European data has now been underperforming since the end of January, and the leading indicators are not looking pretty.

German Manufacturing PMI slipped to 50.2 from 52.3 in January, with a reading below 50 suggesting that the manufacturing sector is contracting. This is something which may become a reality over the coming months ahead given the slowdown of ‘New orders’. French figures are even gloomier, with PMI Manufacturing sliding to 49.8 from 50.2. Brexit fears may also spur risk aversion, potentially increasing the demand for silver.

However, for now the trend is bearish, and we will respect it. The day continues with more PMI releases, and this afternoon Chicago PMI is expected to improve from -0.22 to -0.10, while Markit U.S. PMI is expected to improve from 52.4 to 52.5.

See the DailyFX Analysts' 1Q forecasts for the Dollar, Euro, Pound, Equities and Gold

Silver Prices | FXCM: XAG/USD

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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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