Silver’s bullish break under threat with aggressive sellers parked above

Silver finds itself perched above a key support zone
Price action points to aggressive sellers parked just above these levels
The support zone can be used to build a trade around, regardless of how the price evolves
US core PCE inflation report is the key macro event this week

Silver teetering above support zone

It could be an important day for silver, threatening to break the uptrend that kicked off the bullish run back in February. Given its importance, it comes across as an ideal level to build a trade around, regardless of how the price action evolves from here.

I’m not going to preempt which way the price will break, although the series of topping patterns at progressively lower levels in June – an evening star followed by two ugly bearish engulfing candles – warns there may be big sellers lurking not far above these levels.

For now, you can see silver is resting on uptrend support having pushed below it earlier today, the reversal possibly reflecting the proximity of the 50-day moving average which acted as support earlier in June.

Sell the break…

Should the price break and close below the uptrend and 50-day moving average, you could sell with stop loss above the trendline for protection. The initial target would be $28.77, a level that has acted as both support and resistance since early May. $27.622 is another potential target, coinciding with horizontal support and the bottom of the bull flag silver currently finds itself in.

Even though the price action in June warns of a growing risk of a bearish break, that doesn’t mean such a scenario will materialise. I’ll therefore wait for the price to tell me how to proceed.

…or buy the bounce

Should uptrend support hold, you could buy with a stop loss below either the uptrend or 50-day moving average, depending on your risk tolerance and trade target. The first upside target would be the top of the bull flag, currently found at $30.50. If that were to give way, $30.857, $31.548 and May highs above $32.50 would be the next levels to watch.

Key event risk looms

As for key drivers in the days ahead, it’s hard to go past the US core PCE deflator on Friday given the implications for the Fed rate outlook and US dollar. From a fundamental perspective, silver and other noninterest-bearing assets would normally benefit from a weaker greenback and lower US borrowing costs, creating tailwinds from a FX perspective and reducing the opportunity cost of holding long silver positions.

-- Written by David Scutt

Follow David on Twitter @scutty

The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Please note that foreign exchange and other leveraged trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved, seeking independent advice if necessary.

The products and services available to you at FOREX.com will depend on your location and on which of its regulated entities holds your account.

FOREX.com is a trading name of GAIN Global Markets Inc. which is authorized and regulated by the Cayman Islands Monetary Authority under the Securities Investment Business Law of the Cayman Islands (as revised) with License number 25033.

FOREX.com may, from time to time, offer payment processing services with respect to card deposits through StoneX Financial Ltd, Moor House First Floor, 120 London Wall, London, EC2Y 5ET.

GAIN Global Markets Inc. has its principal place of business at 30 Independence Blvd, Suite 300 (3rd floor), Warren, NJ 07059, USA., and is a wholly-owned subsidiary of StoneX Group Inc.