Silver Price Analysis: Finds bottom but still risks further weakness

  • The price of Silver finds support at $26.70, but remains at risk of weakening further.
  • It formed a pattern on the 4-hour chart after hitting the top of a four-year consolidation at $30.00.
  • XAG/USD has fallen to an initial target, but is vulnerable to further declines: support is at $25.80.

The price of the Silver (XAG/USD) It has found a bottom at $26.70 and is consolidating. This follows a sell-off that reversed the short-term uptrend after Silver was rejected by the top of a long-term range just below $30.00 (green line).

On Tuesday, the precious metal formed a bullish candlestick on the daily chart (lower circle).

Silver Daily Chart

If the hammer is followed by a bullish green candle on Wednesday confirming the bullish shift in sentiment, it could signal a possible short-term bullish correction. Otherwise, the price of Silver runs the risk of continuing to decline. A break below the hammer's low would confirm further weakness. The next bearish target would likely be the support at the top of the one-year range, around $25.80.

The Moving Average Convergence/Divergence (MACD) Momentum Indicator has crossed below its signal line, indicating that further weakness is likely. The signal is reinforced by the fact that the MACD has proven to be a more reliable indicator in markets that are not trending strongly, such as Silver.

A decisive break below $25.80 would return silver within its one-year range and possibly the lower trendline around $23.00.

From a bullish perspective, a decisive break above the 2021 high of $30.07 would suggest silver is rising, with an initial target at $32.40 where former resistance lies.

4 hour chart

The 4-hour chart, which is often used by analysts to determine the short-term trend, shows in more detail the price dynamics that preceded the decline from the top of the four-year consolidation zone (green line).

The price of Silver formed a head and shoulders (H&S) pattern at the mid-April highs of $30.00.

When the pattern broke below its “neck line” at the base, around $28.00, it fell sharply to an initial target of $26.70. This target is the conservative estimate of the pattern, calculated by taking the height of the shoulder and head pattern and extrapolating the distance by a Fibonacci ratio of 0.618% from the neck line downwards.

If the pattern continues to fall to its bullish target, which is the full distance from the height of the extrapolated pattern below (Fibonacci 1,000), it will reach a target roughly at the same level as the high of the one-year range, around $25.80.

Source: Fx Street

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