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  • XAG/USD prices are a little higher amid a broadly weaker US dollar. 
  • The precious metal is eyeing a break above a medium-term pennant structure. 

Spot silver (XAG/USD) prices have been trading on the front foot on Wednesday, in fitting with broad strength being seen across precious metals as the US dollar comes under pressure. At present, XAG/USD trades with gains of around 0.3% or 5 cents in the $26.30s.

Month, quarter and year-end flows appear to be the main factor driving the latest move lower in USD as opposed to anything risk appetite related (indeed, while US equity futures are a little higher, European stocks and crude oil markets are lower). The Dollar Index slumped to fresh annual lows on Wednesday morning, hitting its lowest levels in over two years in the 89.50s. Many a dollar bear will be targeting the 2018 lows just at around 88.25.

Factors driving markets right now…

In terms of the main fundamental factors driving markets on Wednesday; the UK and EU signed off on their trade agreement and the EU and China signed off on their investment agreement, both as expected.

In terms of the latest Covid-19 developments; the situation is looking increasingly ugly on both sides of the Atlantic with the daily US death toll rising to a record high 3725, while the daily German death toll rose above 1000 for the first time. Meanwhile, the UK government is slated to announce stricter lockdown measures later in the UK afternoon as cases continue to surge and France is reportedly mulling a 6pm curfew.

Whilst the situation does appear to be deteriorating into the new year faster than investors might have expected a few weeks ago, the market is for now holding its nerve (as seen in the weakening USD) given the rollout of mass vaccination programmes; the UK just approved the Oxford University/AstraZeneca vaccine and has ordered 100M does (enough to vaccinate 50M people), which will accelerate its vaccination efforts in the coming weeks, whilst the EU has also started distributing the Pfizer vaccine and is likely to approve Moderna’s vaccine in January.

If the market’s nerve does start to falter in the new year, precious metals might well be hit by any significant strengthening of the US dollar.

XAG/USD continues consolidation within pennant

XAG/USD prices continue to consolidate within a medium-term pennant structure; to the upside, the price action is being capped by a downtrend linking the 21, 28 and 30 December highs and is being supported by an uptrend linking the 14, 23 and 24 December lows. A break above this pennant (which would likely be signalled by a move back towards $26.50 would open the door for a test of weekly highs around $26.77 and then on to the psychological $27.00 level and perhaps last Monday’s highs at $27.40. A downside break (signalled by a move below support at $26.00) would likely open the door to a move all the way back towards $25.00, which coincides pretty well with last Monday and Tuesday’s lows and comes in just above the 21-day moving average at $24.90.

XAG/USD four hour chart