Silver Price Analysis: XAG/USD bounces off two-year low to poke $18.00 ahead of US NFP

Silver price (XAG/USD) consolidate weekly loss at the lowest levels since July 2020, picking up bids to refresh intraday high around $17.95 during early Friday morning in Europe. In doing so, the bright metal snaps a five-day downtrend as the traders prepare for the monthly US employment data.

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

Chinese authorities show readiness to adopt various monetary policy tools, other than the rate cuts, to renew market optimism amid the covid woes. The policymakers also appear okay with giving special attention to the aiming real-estate sector.

On the other hand, the DXY drops 0.20% intraday to 109.45 by the press time, reversing from the highest levels since 2002.

Even so, fears surrounding the global economic slowdown, led by China’s covid woes and geopolitical tussles surrounding Europe, seem to weigh on the XAG/USD price. Also exerting downside pressure are the hawkish Fedspeak and firmer US data that underpin the market’s hopes of the Fed’s aggression towards raising rates despite recession fears.

On Thursday, US ISM Manufacturing PMI reprinted the 52.8 figure for August versus the market expectations of 52.0. Further, the final reading of S&P Manufacturing PMI for August rose past 51.3 initial estimates to 51.5, versus 52.2 prior final for July. On the same line, US Initial Jobless Claims dropped to 232K versus 248K forecast and 237K prior. Further, the Unit Labor Cost rose 10.2% QoQ during the second quarter (Q2) versus 10.7% expected while Labor Productivity dropped by 4.1% during Q2 versus the anticipated fall of 4.5% and -4.6% prior.

Following the data, Atlanta Fed President Raphael Bostic said that the Fed has work to do with inflation, a 'long way' from 2%. Before that, the newly appointed Dallas Fed President Lory Logan joined the lines of hawkish fellow US central bankers while saying, “Restoring price stability is No. 1 priority.”

Amid these plays, the US 10-year Treasury yields seesaw around the highest levels since late June, near 3.26% by the press time, while the two-year US bond coupons follow the trend by teasing the 15-year high near 3.51%. With this, the yield curve inversion hints at the recession fears and the traders’ rush towards bonds. That said, the CME’s FedWatch Tool signals 74% chance of the Fed’s 75 basis points of a rate hike in September versus nearly 69% previously.

It should, however, be noted that the downbeat expectations from the US employment numbers seem to keep silver traders on the edge as any positive surprise could quickly renew the US dollar run-up and weigh on the XAG/USD. That said, the US Nonfarm Payrolls (NFP) bears the expectations of easing to 300K versus 528K prior while the Unemployment Rate is likely to remain unchanged at 3.5%.

Technical analysis

Silver’s recovery remains elusive until the quote stays below July’s low of $18.15. That said, June 2020 low near $16.95 appears to lure the XAG/USD bears.