Silver Prices End Their Downward Trend

2016-03-04 12:49:00

Alejandro Zambrano, Market Analyst

Talking Points

Silver ended its short-term downward trend, but may rise as gold prices are currently trending upwards.
U.S. Non-Farm Payroll results are on tap today and may make a strong imprint on the price of silver.

By breaching the January 25 high of $15.34, silver ended its short-term downward trend.

Price is now range bound between last week’s low of $14.63 and the high of $15.60. A break to the upper barrier at $15.60, may lift price to the February 12 high of $15.82, while a break to the lower limit of $14.63 may instead trigger a decline to the February 1 low of $14.23.

At this stage I see it as likely that price will breach its upper limit given that gold prices are trending higher.

What Has Motivated Higher Prices?

The move higher over the last few days appears to have been motived by a softer USD (FXCM: USDOLLAR) and one of the contributors to the softer USD is yesterday’s ISM Non-Manufacturing report. It declined to 53.4 from 53.5, and beat the median forecast of 53.1 (Bloomberg news poll).

However, the employment gauge declined to a two year low (49.7), suggesting a soft NFP release today. The inflation component dropped to levels not seen since 2009 (45.5), indicating that the current run in U.S. inflation may be of a temporary nature, and may therefore lead to the Fed delaying further rate hikes.

Non-Farm Payrolls

A Bloomberg news survey calls for 195k new jobs to be added to the economy, the unemployment rate to stay unchanged at 4.9%, and for Average Hourly Earnings to rise by 0.2% MoM and 2.5% YoY respectively.

The headline number will always attract attention and a stronger than expected reading may soften silver and vice versa. The unemployment rate is important but with it at levels close to where the Fed would like it to be, it would not surprise me if both the central bank and markets shift their focus instead towards Average Hourly Earnings.

If Average Hourly Earnings pick up more than expected, it may force the Fed to raise rates sooner rather than later.

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

Silver Prices | FXCM: XAG/USD