XAG/USD bounces off two-year low and proposes $18.00 US NFP

  • Silver price breaks five-day downtrend and reverses from lowest levels since July 2020.
  • Sluggish markets ahead of US NFP, DXY decline underpins corrective XAG/USD rally.
  • Bears remain hopeful amid recession fears and hawkish Fed bets.

Silver (XAG/USD) prices consolidate weekly losses at lowest levels since July 2020, picking up bids to refresh intraday high around $17.95 early Friday morning in Europe. The bright metal is in a five-day downtrend as traders prepare for the monthly US jobs data.

The short-covering moves could also be linked to stimulus hopes from China as well as a pullback in the US Dollar Index (DXY) from the highest levels in two decades.

Chinese authorities are poised to use various monetary policy tools alongside rate cuts to renew market optimism amid Covid troubles. Politicians also seem to agree that special attention should be paid to the emerging real estate sector.

On the other hand, the DXY is down 0.20% on the day to 109.45 at press time, returning from the highest levels since 2002.

Still, fears surrounding the global economic slowdown, led by China’s Covid woes and geopolitical infighting over Europe, appear to be weighing on the XAG/USD rate. Dovish Fed language and firmer US data are also exerting downward pressure, bolstering market hopes for an aggressive Fed rate hike amid recession fears.

On Thursday, the US ISM Manufacturing PMI reprinted August’s reading of 52.8 versus the market’s expectation of 52.0. In addition, the S&P Manufacturing PMI August final rose to 51.5 from the initial estimate of 51.3, up from 52.2 before the July final. Along the same line, US initial jobless claims fell to 232k versus 248k forecast and 237k previously. In addition, unit labor costs rose 10.2% QoQ in the second quarter (Q2) versus 10.7% exp. while labor productivity fell 4.1% in Q2 versus 4.5% and -4% exp. 6% before.

Following the data, Atlanta Fed President Raphael Bostic said the Fed is dealing with inflation, a “long way” from 2%. Earlier, newly appointed Dallas Fed President Lory Logan joined the ranks of hawkish US Federal Reserve peers and said, “Restoring price stability is the top priority.”

Amidst these moves, US 10-year Treasury yields have been teetering around their highest levels since late June, near 3.26% at press time, while US 2-year bond coupons are following the trend, touching the 15-year high near 3.51 % tease. The inversion of the yield curve thus points to recession fears and traders’ rush to bonds. However, the CME’s FedWatch tool signals a 74% chance of a 75 basis point Fed rate hike in September versus nearly 69% earlier.

However, it should be noted that the bearish expectations for the US jobs number seem to be keeping silver traders on guard as any upside surprise could quickly reignite the US dollar’s rise and weigh on the XAG/USD. However, US Nonfarm Payrolls (NFP) carry expectations of a decline to 300k from 528k previously, while the unemployment rate is likely to remain unchanged at 3.5%.

Technical Analysis

Silver’s recovery remains elusive until the price stays below the July low of $18.15. However, the June 2020 low near $16.95 seems to be luring XAG/USD bears.

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