- Silver attracted some dip-buying on Monday, though lacked any strong follow-through.
- The formation of a rectangle points to a brief consolidation before the next leg down.
- Sustained weakness below the $25.70 confluence will reaffirm a bearish breakdown.
Silver reversed an intraday dip to the $25.80 region and inched back closer to daily tops during the early European session. The uptick, however, lacked any follow-through and remained capped near the $26.25-30 resistance zone. The mentioned barrier coincides with the 50% Fibonacci level of the $23.78-$28.75 move up and should now act as a key pivotal point for intraday traders.
Looking at the broader picture, the XAG/USD has been oscillating in a narrow band between the 50% Fibo. and the 61.8% Fibo. level over the past one week or so. The range-bound price action constitutes the formation of a rectangle on short-term charts. Given the recent slump, the rectangle might be categorized as a bearish consolidation phase and supports prospects for further weakness.
The negative outlook is reinforced by the fact that oscillators on the daily chart are holding deep in the bearish territory. That said, traders are likely to wait for a sustained break below the $25.70 region (61.8% Fibo.) before placing fresh bearish bets. The latter coincides with the very important 200-day SMA, which if broken decisively will set the stage for a further depreciating move.
The next relevant support is pegged near the $25.55 region before the XAG/USD eventually drops to the key $25.00 psychological mark en-route the $24.80 horizontal level. Some follow-through selling would turn the white metal vulnerable to extend the decline towards the $24.00 mark. The downward trajectory could eventually drag the commodity towards YTD lows, around the $23.80-75 zone touched in March.
Conversely, a sustained strength beyond the trading range hurdle near the $26.25-30 area will negate the bearish outlook and prompt some short-covering move. The XAG/USD might then look to build on the recent bounce and accelerate the positive move towards an intermediate resistance near the $26.55-60 supply zone. The momentum could further get extended towards the $26.85 region, or the 38.2% Fibo.
Silver daily chart
Technical levels to watch
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