Saad Ullah
Description: The silver price (XAG/USD) continues to hold firm near $32 as the US Dollar faces pressure due to expectations of a significant rate cut by the Federal Reserve.
XAG/USD Holds Steady Near $32 as Fed Bets Increase
The silver price (XAG/USD) remains steady near the critical resistance level of $32.00 during Wednesday’s New York session. This marks a significant point for the white metal as it retains strength, even with the US Dollar struggling amid growing market speculation that the Federal Reserve may deliver a considerable interest rate cut during its remaining meetings this year. Traders are increasingly pricing in the likelihood of another large cut by the Fed, which would further pressure the US Dollar.
The US Dollar Index (DXY), which measures the performance of the Greenback against six major global currencies, has fallen close to a yearly low, hovering around 100.20. Despite this, US 10-year Treasury yields have surged to 3.77%. Ordinarily, rising bond yields would dampen demand for non-yielding assets like silver. However, XAG/USD has managed to hold its ground, buoyed by expectations that the Fed will act to reduce borrowing costs soon.
Fed Rate Cut Bets Surge
Market participants now anticipate that the Federal Reserve will reduce its interest rates by a total of 75 basis points (bps) across its final two policy meetings in 2024. According to the CME FedWatch tool, expectations have shifted towards a 50 bps rate cut, followed by a smaller 25 bps reduction. The probability of a larger-than-usual cut in November has increased to 59%, up from just 37% a week earlier. This growing sentiment is adding to the bullish outlook for silver.
Adding to the complexity of the situation, the upcoming US core Personal Consumption Expenditure (PCE) price index data for August is expected to play a pivotal role. This data, which serves as the Fed's preferred inflation gauge, is set to be released on Friday. Economists are predicting that the annual inflation rate could edge up to 2.7%, compared to 2.6% in July, which could further influence Fed policy decisions.
XAG/USD Technical Outlook
From a technical perspective, silver is closing in on its decade-high price of $32.50. XAG/USD experienced a surge after breaking through a downward-sloping trendline that began with the May 2021 high of $32.50. The near-term outlook for silver remains positive, with the 20-day Exponential Moving Average (EMA) hovering around $30.20, signaling continued upward momentum.
The 14-day Relative Strength Index (RSI) shows silver trending within the 60.00-80.00 range, indicating strong bullish momentum. Should the RSI remain within this band, it could trigger further gains in the XAG/USD pair, driving it closer to the $32.50 resistance level.
Outlook for Silver Prices and Key Events to Watch
Moving forward, investors will keep a close eye on key economic indicators and Fed actions, which will be essential in determining the next move for XAG/USD. With inflation pressures seemingly rising, as indicated by the upcoming PCE index, and the Fed facing pressure to lower rates, silver’s price dynamics will likely remain volatile. However, the broader sentiment continues to favor further gains, especially if the Fed acts on the rate cut expectations.
For traders, the short-term horizon for XAG/USD looks bullish, with technical factors suggesting further strength ahead.
Saad Ullah
