The momentum of silver price (XAGUSD) has waned. The metal is down for the past three consecutive days and is down by more than 4% today. It is trading at $23.30, which is significantly lower than this week’s high of $26.18. Other metals have also declined, with copper price falling by 0.80% and gold price declining by 0.40%.
Silver price falls because of the stronger US dollar
The main reason why silver price is falling today is because of the stronger US dollar. The closely-watched US dollar index has jumped by about 0.10% today in reaction to the mild interest rate decision by the Federal Reserve.
Gold and silver prices tend to have an inverse relationship with the US dollar. For example, while the greenback has fallen by 4% in the past month, gold and silver prices have risen by 9% and 28%, respectively.
So, the question is whether today’s dollar strength is here to stay. In a note to investors, analysts at ING said that they believe that today’s bounce of the US dollar is temporary. They said:
“The dollar may be looking at some stabilisation as risk assets stay capped for now, but with the other two safe havens (JPY and CHF) looking more attractive for a defensive stance as virus cases keep surging, USD recovery prospects still look tenuous.”
Goldman Sachs had the same sentiment yesterday. In a note to clients, the Wall Street titan said that the US dollar weakness is here to stay. They cited the increased amount of liquidity in the market and the fears of the dollar debasement. In the report, they said:
“Gold is the currency of last resort, particularly in an environment like the current one where governments are debasing their fiat currencies and pushing real interest rates to all-time lows.”
Therefore, even after three consecutive days of losses, it seems like the longer-term forecast of silver price is bullish.
Silver price technical forecast
The daily chart shows that silver price has been in the red for the past three consecutive days. The price is significantly above the 50-day and 100-day exponential moving averages. Also, it is slightly above the 23.6% Fibonacci retracement level. Therefore, in the short term, I expect that the XAGUSD pair will continue falling as bears target the 23.6% retracement at 22.62 and as traders take profits. However, in the longer-term, the trend remains being bullish.
On the flip side, a move below $22 will invalidate this trend. This price is slightly above the 38.2% Fibonacci retracement level.