Silver under pressure as market turns to USD for safety

• The US dollar has attracted a safe haven bid at the start of the week, weighing on XAG/USD.
• Major lenders came under pressure after Nomura and Credit Suisse warned of significant losses.

The price of silver is on the  back foot as the US dollar continues to move higher despite the shallow daily correction on the DXY.

At the time of writing, the DXY is trading higher by 0.14% while XAG/USD is down by over 1.3% on the day so far.  

A mixed start to the week as investors brace for the Nonfarm Payrolls event at the end of the week, as well as quarter-end and for any ramifications from the hedge fund defaults in the banking sector.  

Wall Street’s main indexes opened lower on Monday after a surge in the previous session, as global banks, such as Nomura, said they faced potential losses from a hedge fund’s default on margin calls.

Archegos Capital risk sends US dollar higher

Major lenders came under pressure after Nomura and Credit Suisse warned of significant losses due to exposure to a single client who failed to meet margin calls, later identified by reports as New York City-based Archegos Capital.

Shares of both Nomura (NMR) and Credit Suisse (CS) fell nearly 14% as the companies unwind their Archegos positions.

Soon after the shares dropped, the US dollar sprung into action as US bond yields rallied, sinking the precious metals to the lows of the day.

Negatively for gold and silver, the greenback is attractive under such circumstances considering the implications for US dollar liquidity in the financial sector.  

The Archegos impact remains limited for now, given that the effect was concentrated on a few companies, although markets will be quick to scrutinise the fragility of the financial sector as a whole due to the contagion  risk.  

When the banking sector dropped in 2020 as the world responded to the covid pandemic and the US dollar funding markets came under stress, gold and silver prices fell hard on the knee jerk as the markets scrambled for dollars. Silver dropped  by as much as 38% between the 24th Feb and 16th March.  

Silver technical analysis  

Meanwhile, from a technical perspective, the price of silver is breaking out of sideways consolidation, embarking on fresh lows from within the late Feb bearish trend.

The technical environment is bearish while the price is diverging away from the 10-day and 4-hour EMAs.

A break of $24.4105, or the 25 March lows, $24.1900 will be key according to the weekly time frame as a last level of resistance.

$24.0180 comes thereafter as prior supportive weekly lows that led to a huge rally and the ultimately, the record highs scored in early Feb of this year.