Key Points
- Weekly support (26.457) is now in play for the XAG/USD.
- The market is now pricing in a more hawkish Fed until at least September.
- Metals and commodities are under pressure due to expectations of “higher for longer” interest rates.
- Wednesday’s news cycle will bring periods of calm and intense volatility.
With just over a day until the Fed Announcements, the metals markets are on the move. At press time, both silver (XAG) and gold (XAU) are posting intraday downtrends. Conversely, the USD is gaining value as traders prepare for the FOMC’s monetary policy verdict.
Hawkish Pivot Drives Metals Lower
Conventional wisdom tells us that the price of metals has a negative correlation with the USD. As the USD falls, metals rise; as the USD rises, metals fall. This has certainly been the case Tuesday—the USD dollar index (DXY) is up nearly ½ percent, while silver is down more than 2 percent.
Without question, Wednesday’s FOMC Announcements are the number one market driver facing silver. Last week brought a major shift in Fed expectations from dovish to hawkish. As of this writing, the CME FedWatch index isn’t projecting a rate cut until September.
Perhaps more instructive on the market’s monetary policy sentiment are the FedWatch’s end-of-year probabilities. Today, the index estimates there to be a 22.1% chance of the Fed holding rates at 5.25-5.5% at the December meeting. Only one month ago, the FedWatch assigned a meager 1% chance of this occurring.
The bottom line: over the past several weeks, market expectations of up to four rate cuts in 2024 have gone by the wayside. This suggests a stronger dollar and static metals pricing.
Exercise Caution On Fed Day
Traditionally, the trading session of the FOMC Announcements is turbulent. Periods of intense volatility frequently follow hours of slow participation. Subsequently, price action typically becomes choppy and chaotic.
If you’re trading silver over the next 24 hours, here are the key times to remember for the Wednesday session: ADP Nonfarm Employment Change (8:15 AM EST), ISM Manufacturing PMI (10:00 AM EST), FOMC Statement (2:00 PM EST), and the FOMC Press Conference (2:30 PM EST).
The key event to watch is the FOMC Presser at 2:30 PM EST. Any forward guidance from the FOMC is sure to shake the forex, futures, and stock markets. Silver will be no different; be ready for sudden volatility throughout J. Powell’s presser.
Key Level In Play For XAG/USD
Last week, we outlined a key weekly Fibonacci retracement level for the XAG/USD. That level is now in play, with buyers and sellers slugging it out in the 26.5000 area.
At this juncture, confirmation above the Weekly 62% retracement (26.457) is a signal that the bearish price action may be reaching an exhaustion point. If we see a green 4-hour candle close above this level, that is a strong bullish signal and a possible intraday buying opportunity.
It’s a huge week in the markets. Wednesday’s FOMC Announcements and Friday’s US Nonfarm Payrolls have the potential to be epic market movers. Remember, patience pays. Stay vigilant, practice good risk management, and collect some green pips ahead of the weekend break.
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Risk Disclosure: The information provided in this article is not intended to give financial advice, recommend investments, guarantee profits, or shield you from losses. Our content is only for informational purposes and to help you understand the risks and complexity of these markets by providing objective analysis. Before trading, carefully consider your experience, financial goals, and risk tolerance. Trading involves significant potential for financial loss and isn't suitable for everyone.
