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Silver (XAG/USD) Talking Points
- XAG/USD limited by technical resistance
- Psychological support is firm, candlestick pattern supports recovery from psychological support
- U.S. strength prevails, capping commodity gains
Silver Technical Analysis
Silver futures are trading at a pivotal point as the industrial metal hovers below 21.00. After bouncing off the psychological level of 18.00 in mid-July, the price managed to bounce higher before hitting the next major resistance at 20.00.
On the monthly time frame, the formation of the Dragonfly Doji followed by a bearish engulfing on the weekly chart pushed the CCI into oversold territory. In technical analysis, the candlestick pattern described above tends to signal a potential reversal, which usually occurs after a sharp decline.
What is silver? Understanding silver as a commodity for traders
Silver (XAG/USD) Monthly Chart
While aggressive rate hikes and a hawkish Federal Reserve limit upside, a stronger dollar poses an additional threat to price action. With the greenback’s safe-haven appeal as a reserve currency increasing, silver bulls won’t be retreating anytime soon, with technical support and resistance levels back in play.
On a daily basis, the 78.6% retracement level of the March-June move has been rejected, with bulls finding comfortable support above the 20.00 level. With the 20-day EMA (moving average) providing additional support at 19.758, a break below 21.00 could shift focus to former support-turned-resistance at 21.635.
Silver (XAG/USD) Daily Chart
Silver Sentiment
At the time of writing, data from retail traders shows that 88.53% of traders are net long, with a trader ratio of 7.72 to 1. The number of net long positions decreased by 0.16% from yesterday and 2.36% from last week, while the number of net shorts increased by 42.77% from yesterday and 21.67% from last week.
We generally think crowd sentiment is contradictory, and the fact that traders are net long suggests that silver prices could fall further.
Still, traders are less net-long than yesterday and last week. The recent change in sentiment warns that the current silver price trend could soon reverse higher, although traders remain net long.
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