Recovery in silver prices might be fleeting

26 May 2023 168
Recovery in silver prices might be fleeting

The silver price declined to its lowest level over the past few months. Weaker precious metals were caused by the strengthening of the dollar index amid the situation with the U.S. government debt ceiling.

If the decision is not made until June 1, there could be a default in the country. The American currency is also supported by the Federal Reserve (Fed) hawkish stance aimed to fight persistent inflation. In case of another rate hike at the U.S. central bank’s meeting in June, precious metal might continue declining. Today's release of the U.S. Consumer Spending Index data at 1:30 PM GMT should shed some light on the situation.

Even with an agreement on the U.S. government debt ceiling, the dollar’s strength against world currencies may persist, as the Treasury will actively borrow money to replenish the country's budget. This means higher yields on the U.S. government bonds and demand for dollar liquidity. In this case, other assets will be under pressure.

U.S. President Joe Biden and top Republican Kevin McCarthy are close to reaching a deal on the U.S. debt ceiling. The parties disagree on just $70 billion in discretionary spending.

It is expected that a shortened agreement with a few key figures, such as discretionary spending, will replace the bill with hundreds of pages.

Сontrolled spending in the U.S. reached $1.7 trillion in 2022, accounting for 27% of total spending of $6.27 trillion. About half of this amount is spent for defense.

According to the technical analysis, silver prices are now attempting to recover. The further growth potential is rather weak, as the limit of the downtrend is already close. Most likely, there will be a rebound from it and testing of the local lows, which were hit during yesterday's trading session.

The downside target will be the level of $22.67. A Stop-loss will be set at the break of the downtrend, which corresponds to the price of $23.20. Moving higher than the Stop-loss will mean the trend reversal and attempt to form a rising momentum.

Silver prices are likely to decline:

Take profit – 22.67

Stop-loss – 23.20

This content is for informational purposes only and is not intended to be investing advice.

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