Silver Price Forecast: XAG/USD bounces back to $26.60 after weak US Manufacturing PMI report

Silver price (XAG/USD) recovers strongly from four-month low of $26.30 as the United States Institute of Supply Management (ISM) has reported a weak Manufacturing PMI report for April. The ISM reported that the Manufacturing PMI falls sharply to 49.2 from the consensus of 50.0 and the prior reading of 50.3. The factory data remained below the 50.0 threshold, which itself is a sign of contraction.

New Order Inflows drop significantly to 49.1 from 51.4 in March, suggesting a weak demand outlook, which could be considered as the consequence of higher interest rates by the Federal Reserve (Fed).

Despite a sharp decline in the Manufacturing PMI, the Fed is expected to support the “higher for longer interest rates” argument as Manufacturing Price Paid rose significantly to 60.9 from the estimates of 55.0. Higher Manufacturing Prices Paid are generally driven by an increase in input prices and wages paid to workers, which suggests stubborn price pressures.

Weak Manufacturing PMI has weighed on the US Dollar. The US Dollar Index (DXY) edges down from fresh three-week high of 106.50.

Meanwhile, the major event for investors will be the interest rate decision by the Federal Reserve, which will be announced at 18:00 GMT. Investors see the Fed holding interest rates steady in the range of 5.25%-5.50% for the sixth time in a row. As the Fed is widely anticipated to maintain the status quo, investors will keenly focus on the interest rate guidance.

The CME FedWatch tool shows that policymakers will favor unwinding the restrictive monetary policy framework from the September meeting. Therefore, the Fed will maintain a hawkish stance on interest rates in the near-term. Investors would keenly focus on whether the Fed will remain committed to its three-rate cut projections for this year, indicated by Marchs dot plot.

Silver technical analysis

Silver price declines toward the horizontal support plotted from 14 April 2023 high around $26.09 on a daily timeframe. The above-mentioned support was earlier a major resistance for the Silver price bulls. The uncertainty over Silver’s near-term outlook deepens as it has slipped below the 20-period Exponential Moving Average (EMA), which trades around $27.20.

The 14-period Relative Strength Index (RSI) slips into the 40.00-60.00, suggesting the bullish momentum has faded. However, the long-term outlook is still stable.

Silver daily chart