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Technical Analysis of Silver

Silver has had a good run from its December 2011 lows and was on course to break out major downtrend from the highs of April 2011. The upside movement however did not manage to take hold as the bears dragged the metal heavily down on Wednesday 29th February, after Federal Reserve Chairman painted an improved picture of the situation in the US, dampening expectations for further monetary stimulus that pushed the US Dollar up against all major currencies.

The failure to break out of the major downtrend channel at 37.71, the 50% Fibonacci level from the April 2011 high to December 2011 low, as shown in the weekly chart, and the hard drop on heavy volume could be a sign of a trend reversal, with silver now expected to drop further despite the bullish alignment of the moving averages on the daily chart. The falling RSI on the daily chart is also indicating weakness. Taking into account the recent rally of the US Dollar index that is trading firmly above the 79.00 level and is set to regain more ground against its major counterparts, long positions with target at key support level by 32.47 (23.6% Fibonacci level)are now favourable. In the alternative scenario, a break above 35.65 (38.2% Fibonacci level) could open the door towards strong resistance by 37.70.

Dafni Serdari
Market Analyst
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