The market recorded the most significant drop in silver prices in recent times. The decline was caused by Federal Reserve Chair Jerome Powell's hawkish comments and a strengthened U.S. currency.
Earlier, Powell announced a possible increase in interest rates by the U.S. central bank in January. Traders estimate the probability of additional tightening of monetary policy by the Fed at 22%. The rate hike will occur if the inflation rate remains above the regulator's target. This fact led to a sharp increase in the dollar and put downward pressure on the silver price.
The market is now closely watching for upcoming data on consumer price inflation (CPI) and retail sales in the U.S. The mentioned indicators may determine the further dynamics of the precious metal.
Meanwhile, there are more factors contributing to the precious metals growth. At the end of last week Moody's lowered its outlook on the U.S. credit rating to "negative" from "stable".
The main reason for Moody's decision was the unstable political situation in the country. The U.S. Congress failed to pass a law on financing the government after November 17. At the same time, the country's national debt continues to grow due to high interest rates.
In the context of higher interest rates, effective fiscal policy measures to reduce government spending or increase revenues are needed. Moody's expects that the U.S.' fiscal deficits will remain very large.
Another important event was a disappointing 30-year Treasury auction, which resulted in investors taking on 24.7% of government debt. Last year this figure was half as much.
These factors may have a positive impact on the silver price.
Silver prices start to correct on the H4 timeframe.
In terms of wave analysis, the price is forming the second descending wave. If the price approaches the strong support at 22.20, it may create conditions for the reversal and the formation of a new upward wave. Divergence of the MACD indicator (standard values) increases the chances of the reversal.
The short-term outlook for silver is to buy.
The target is at the level of 25.000.
Part of the profit should be fixed near the level of 23.670.
A Stop-loss should be placed near the level of 20.600.
The bullish trend is of a short-term nature, so it is suggested to limit the trading volume to no more than 2% of your capital.