Silver prices have been unable to make headway despite the generally upbeat manufacturing data that have come out of China at the start of the week. Karen Jones, who is the Head of Technical Analysis Research at Commerzbank, has provided the bank’s analysis of the price activity of the XAGUSD pair. She insists that the current negative bias on silver prices is a reflection of the rejection at the barrier to the north at 25.77.
According to her, 25.77 has served as the topping barrier to the rally within the 3-month downtrend in silver prices. As per her analysis, Commerzbank feels that if this cap remains intact, there are near-term downside risks that would remain and allow for a retest of the 21.64 September low as well as the 21.63 July 2014 high.
The bank has also made allowance for silver price stabilization at the 200-day moving average at 20.39, with the 2008 peak located at 21.40 being a barrier that guards this area against sellers.
What does the analysis of Commerzbank mean in the context of the daily chart? Here is how this plays out.
Technical Outlook for Silver Price (XAGUSD)
Commerzbank is allowing for the possibility of further descent in silver prices, following the conclusion of the upward pullback towards 25.77, which was a retracement from the downtrend move that occurred from 7 August to 24 September.
The price action from then till date has transformed into a rising wedge, which has bearish expectations as far as technical analysis is concerned. Today’s bearish move has set silver price action on the XAGUSD daily chart on a collision course with the lower edge of the rising wedge pattern. This move requires a breakdown of the 24.569 support level, which was a previous resistance to the highs of 5,6,14 and 28 October.
A breakdown of the wedge confirms the pattern’s evolution and adds credence to Commerzbank’s analysis. This move would also allow sellers to set their sights on the next support target at 23.164 (30 September, 30 October and 4 November lows). Below this area, 22.387 and the 24 September low at 21.637 form additional downside barriers that would need to be breached before the end-point of the Commerzbank move at the 200-day moving average is actualized.
But there is a flip side. The fundamentals always override technical setups. Suppose there is a market-moving news release which allows for a bounce on the wedge’s lower border. In that case, this could allow for silver price recovery towards 25.227, with the psychological resistance at 26.000 (21 August low and 9 November high) as well as the resistance at 26.325 (cluster of lows of August and September 2020 acting in role reversal) serving as additional targets to the north. This would put Commerzbank’s analysis in abeyance.
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Silver Price Chart (XAGUSD; Daily)
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