Quotations of silver, like almost all other commodities, ended last week with a strong decline. As a result, it broke through the lower boundary of the 23.2-24.2 flat, where silver had been trading for two months. The fall ended at 22.2-22.3, which had already acted as support in January-February of the last year, and in May-June it acted as resistance.
The general reason for the negative sentiment during Friday's trading session was the U.S. labor market data for January. In January, 517,000 new jobs were created, while market participants expected only 185,000. At the same time, the unemployment rate dropped from 3.5% to 3.4%. After the release of the statistics, the dollar strengthened sharply, and all commodities denominated in U.S. currency intensified the decline.
Analysts had expected the end of the Fed's rate hike cycle in March before the release of January U.S. employment data, but now the situation has changed, and prices for precious metals reacted to a decline, noted Edward Moya, a senior analyst at OANDA.
Nevertheless, Everett Millman, a precious metals analyst at Gainesville Coins, believes that despite the short-term decline, the overall outlook for precious metals remains positive and prices will soon resume rising.
An important event of this week is Fed Chairman Jerome Powell's speech at the Economic Club in Washington. According to ING strategist James Knightley, if Powell's rhetoric does not contradict the initial reaction of the financial market, it will be an indication that the Fed is not worried about the decline in markets, and forecasts about the future easing of monetary policy may become stronger.
The rebound in silver for now does not look very convincing, so to be more reliable it is better to open long positions in the range of 22.2-22.3, where the price is likely to fall. The main target of the rebound is to test the lower boundary of the flat, i.e. 23.2. At the same time, it is possible to start fixing profits a little earlier, when approaching the circular level of 23.
The following trading strategy option can be suggested:
Buy silver in the 22.2-22.3 range. Take profit 1 – 23. Take profit 2 – 23.2. Stop loss – 22.