In the lead-up to the Federal Reserve’s crucial policy meeting, the silver market has witnessed a significant downturn. The price of silver (XAG/USD) has slumped to around $30.30 during the North American session on Wednesday. This decline comes as investors adopt a cautious stance, bracing for the potential impact of the Fed’s monetary policy decisions.
Market expectations, as gauged by the CME FedWatch tool, have firmly factored in a 25-basis points cut in interest rates by the Fed. This anticipated reduction would see borrowing rates lowered to the 4.25%-4.50% range. As a result, the focus has shifted to the Fed’s dot plot, which holds the key to understanding the future trajectory of Federal Fund Rates over the medium and long term.
A recent Bloomberg survey conducted from December 6 to 11 has added to the market’s intrigue. Economists surveyed foresee the Fed implementing three interest rate cuts in the coming year. This projection is based on the assumption that the disinflation process may have slowed more than initially expected. Additionally, the incoming policies of President-elect Donald Trump, such as mass deportations, higher import tariffs, and tax cuts, have led economists to be more concerned about upside risks to inflation compared to downside risks to employment.
On the currency and bond fronts, the US Dollar Index (DXY) is consolidating around 107.00, while 10-year US Treasury yields have climbed to nearly 4.40%. The rise in yields on interest-bearing assets has exerted downward pressure on non-yielding assets like silver, as it has increased their opportunity costs.
From a technical analysis perspective, silver’s price has slipped to a two-week low near $30.20. The breach below the 20-day Exponential Moving Average (EMA), currently trading around $30.95, has further weakened the metal’s position. The 14-day Relative Strength Index (RSI) is oscillating within the 40.00-60.00 range, signaling a sideways trend. Looking ahead, the upward-sloping trendline around $29.50, drawn from the February 29 low of $22.30 on a daily timeframe, is expected to serve as a crucial support level. Conversely, the horizontal resistance plotted from the May 21 high of $32.50 will pose a significant barrier to any upward price movement.
As the market awaits the Fed’s policy announcement, the silver price remains under pressure, with its future direction hinging on the outcome of the meeting and the subsequent market reactions.
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