Key Insights
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Silver prices rallied as the dollar faced downward pressure.
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Treasury yields slide as the PCE shows deceleration in price pressures.
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Oil prices maintain upward momentum amid rising US gasoline consumption and the increased possibility of an EU ban on Russian oil.
Silver prices climbed higher despite slowing price pressures. Gold prices eyed a weekly gain as the dollar drops to a multi-month low. The dollar declined as investors lowered expectations about the size of the next Fed rate hike or a possible pause in the tightening cycle.
Benchmark yields edged lower as the PCE showed a potential pullback in rising inflation. Investors fear the Fed’s aggressive next moves that could weaken the economy. The ten-year yield moved lower by 1 basis point.
Oil prices continue to rally as tight supply concerns remain in focus. Oil demand has risen in the US due to the driving season in the summer. Tight supply also stems from the Russian oil ban, which will continue to buoy prices.
The Core PCE, which is the Fed’s preferred inflation gauge, increased by 4.9% in April from the previous year. While spending beat forecasts, personal income rose less than expectations.
In March, the Core PCE rose by 0.9%, while the index only moved higher by 0.2% in April. Despite that the PCE increased at a slower rate than in March, indicating that mounting inflation pressures could be slowing.
The PCE, including food and energy, rose 6.3% in April from the previous year. In March, it increased at 6.6%, showing a slightly slower pace. Consumers rotate into leisure and travel from spending on goods.
A series of Fed hikes are likely to take place in June and July to further rein in inflation as the reading indicates a still-elevated level.
Technical Analysis
Silver prices extend gains for the second consecutive trading session, edging above the key $22 level. However, XAG/USD maintains a bearish bias as the Fed is likely to raise rates by 50 basis points at its June and July meetings.
Also, decreasing inflationary pressures undermines the precious metal as it is a safe haven asset. If silver breaks below the 10-day moving average of 21.85, it will continue on a downward trajectory and head for the $20.4 level.
A reverse of the trend could take place if the Fed raises rates less than expected or if there is a pause in the tightening cycle.
Support is seen near the 10-day moving average of $21.84. Resistance is seen near the May 6th highs of 22.6. Short-term momentum is positive as the fast stochastic had a crossover buy signal.
The medium-term momentum turns positive as the histogram prints positively with the MACD (moving average convergence divergence). The trajectory of the MACD histogram is in positive territory, which reflects an upward trend in price movement.
This article was originally posted on FX Empire
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