What’s inside:

  • Silver prices find resistance at prior confluence of support
  • It should not rise much above the upper 17s if it is to continue path lower
  • US dollar exerting pressure, look for it to continue

As anticipated, the past couple of sessions silver prices have had a hard time climbing above the upper 17s. This area represents a confluence of levels (Jan trend-line; peaks back to May ’15; lower multi-month parallel). It was viewed initially as support on the drop from over 20, but once it broke last week it turned into our first key area of resistance.

In Friday’s post, we said, “there much is to be learned in the retracement”.

So far, silver is respecting noted resistance as a key inflection point, and with that it offers traders looking to establish a short position an opportunity to enter now that momentum is rolling back lower.

A push lower from here will again bring the 17.12 line into focus as support. At this time, it looks as if silver, and gold too, want to continue along the recently paved path of least resistance. The question we have is this: Will precious metals quickly zoom lower after having only a short period of time to work off short-term oversold conditions, or will there be a period of consolidation before eventually seeking support at lower levels?

In any event, silver should not rise much above today’s high of 17.82 if it is going to continue lower, whether it be immediately or after a period of consolidation. Beyond support at 17.12 there is an air pocket to the left down to around 16.

Silver: Daily

Silver Prices Cooling Off, Dollar Heating Up

Created with Tradingview

Dollar strength is weighing on precious metals, and has had an increasingly more significant impact. The US Dollar Index (DXY) is pushing strongly above key trend-line resistance, which doesn’t bode well for metals. While the relationship over the long-haul between precious metals and the dollar is inverse, in the short-term this fluctuates, even moving to a positive relationship at times. Since early September the 21-day correlation dipped from positive territory to -85%. Even if this correlation is to revert a bit, with the dollar looking to make a run and the inverse relationship strong, we can reasonably conclude that we will see silver, regardless of its flight path, sink further. Note: Keep an eye on the DXY as it quickly approaches resistance at the July high at 97.57.

US Dollar Index (DXY): Daily

Silver Prices Cooling Off, Dollar Heating Up

Created with Tradingview

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---Written by Paul Robinson, Market Analyst

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