XAG/USD remains below $22.00 ahead of Fed minutes releases as 21DMA limits on the upside
- Silver is trading just below the $22.00 level after again failing to recover above its 21DMA level.
- Traders are focused on the forthcoming release of Fed meeting minutes and Fed’s Brainard remarks.
- If the dollar regains some strength amid the Fed’s hawkish stance, silver could fall back to recent monthly lows.
Spot Silver (XAG/USD) prices were last trading just south of the $22.00 a troy ounce level, with the 21-day moving average still offering reasonable resistance at $22.04, and the precious metals also weighed midway a rebound from monthly lows in the US dollar ahead of the release of minutes from this month’s FOMC meeting. Weaker than expected US Durable Goods Orders data for April, which showed a softening in business investment early in the second quarter likely as a result of tighter Fed-induced tighter financial conditions, helped XAG/USD recover from earlier session lows at $21.70 recover but silver is still trading about 0.7% lower on the day.
The impact of tighter financial conditions was also evident in Tuesday’s housing numbers, which showed a sharp drop in US new home sales in April. However, the biggest factor seemingly slowing economic activity in the US economy remains the sharp rise in inflation since early 2021. As long as inflation remains elevated, the US Federal Reserve could be forced to emerge from economic weakness. Traders will be watching the forthcoming minutes release closely for comments on how the Fed views the trade-off between weaker growth and higher inflation.
Minutes are expected to show that FOMC members are firmly behind Chair Jerome Powell’s plan to “quickly” hike interest rates back to neutral by the end of the year. Any debate as to whether the Fed should then pause and rate or continue raising rates well into the hawkish zone would be interesting. A preference for the latter (which would be hawkish) could well result in USD and US yields making a bid and this could weigh on silver.
In fact, silver’s failure to recover above its 21DMA level is a sign that the recent mid-month bullish momentum that has seen XAG/USD bounce off the mid-$20.00 level , gradually subsides. Traders will also be watching for comments from 1615 GMT by Fed Vice Chair Lael Brainard, who is likely to stick to the Fed’s script. Silver bears will be hoping for hawkish sentiment to return, sending XAG/USD back to monthly lows mid-$20.00.