Talking Points
- Silver prices slipped below the April 25 low of $16.78 after the publication of far more hawkish than expected FOMC minutes.
- The Fed may raise rates in June if economy improves.
- The short-term trend will remain bearish below the intraday high of $17.15 formed on May 18.
Yesterday evening, silver prices slipped below the April 25 low of $16.78 after the publication of a more hawkish than expected FOMC minutes release. The expectations of a June Fed rate hike were near 4% at the start of the week but have now surged to 34% according to DailyFX Currency Strategist Ilya Spivak.
The main conclusions from the minutes are that most Fed members think that if the incoming data indicates second-quarter GDP will pick up, and additionally if the labor market conditions continue to be good coupled with inflation continuing to head towards the two percent target, it would be appropriate for the Fed to raise rates in June.
Concerning GDP, we already know that it may pick up, as the Atlanta Fed’s GDP now-cast model projects a rise of 2.5 % (seasonally adjusted annual rate). In regards to the other variables, it appears that the markets expect labor to remain strong and for inflation to rise, given the increased likelihood of a June rate hike.
Independently, whether the Fed raises rates or not, the minutes were hawkish enough to trigger a break to the $16.78- $17.56 range which has dominated over the last few weeks. Silver prices are now trading near the psychological support level of $16.50, followed by the April 18 high of $16.30.
A potentially short-term resistance level is the April 25 low of $16.78, which previously acted as a support but which may now turn into resistance. The short-term trend will remain bearish below the intraday high of $17.15 formed on May 18 and a few hours before the publication of the Fed minutes. The trend is bearish in the short-term, as prices have been creating lower lows and lower highs since May 16. The high preceding the $17.15 high is the May 17 high of $17.32.
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Silver Price | CFD: XAG/USD
Created with Marketscope/Trading Station II; prepared by Alejandro Zambrano
The afternoon session provides updates on the Chicago Fed Nat Activity Index, Jobless Claims, the Philadelphia Fed Index and speeches by Fed members Fisher and Dudley. The speeches may attract the most attention, as both Fisher and Dudley are voters and could confirm or detract from the hawkish FOMC minutes published yesterday evening.
--- Written by Alejandro Zambrano, Market Analyst for DailyFX.com
Contact and follow Alejandro on Twitter: @AlexFX00
