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  • Writer's pictureSieracki Milosz

XAG/USD Analysis: Market Volatility as Risk Aversion Strengthens USD

XAG/USD Analysis: Market Volatility and USD Strength - A Deep Dive


dollars silver bars forex charts

In the fast-paced world of financial markets, where numbers dance to the tune of global events and economic indicators, the recent performance of XAG/USD has attracted keen attention. The silver market experienced a rollercoaster ride, dropping to a daily low of $22.35 before eventually settling around $22.60. This volatility was driven by risk aversion that swept through the financial markets, ultimately bolstering the US Dollar (USD) and shaping the outlook for precious metals.


A Closer Look at the Market Landscape


The prevailing sentiment across the markets at the onset of the week was risk-off. This cautious approach among investors limited the upside potential for silver. Despite the absence of significant data releases, two key factors took center stage: higher US Treasury yields and the strengthening USD. These elements played a crucial role in dictating the tempo of the silver market.


US bond yields, particularly the 10-year bond yields, demonstrated upward momentum following the release of inflation data from July. The 10-year bond yields notched an impressive 4.19%, registering a gain of 1.29% for the day. Meanwhile, the 2-year yield and 5-year yield also experienced notable gains, standing at 4.96% and 4.38%, respectively. This surge in bond yields correlated with an upward trajectory of the USD, as indicated by the DXY index, which reached its highest point since early July, surpassing the 103.00 mark. This rise in the USD's value put a cap on the potential gains for precious metals like silver.


Insights into Future Federal Reserve Actions


A deeper dive into the market dynamics reveals interesting insights regarding the future decisions of the Federal Reserve (Fed). The escalating US yields serve as a hint that expectations of tightening monetary policy have gained traction. Market participants, guided by the World Interest Rate Possibilities (WIRP) tool, are increasingly anticipating a potential skip in September, while the probability of a 25 basis point (bps) increase in November has surged by nearly 40%.


With the stage set for potential shifts in the Fed's stance, all eyes turn to the eagerly awaited Federal Open Market Committee (FOMC) minutes from the July meeting. These minutes carry the potential to shed light on the officials' outlook, a factor that could potentially inject volatility into both the US bond markets and the price dynamics of XAG/USD.


Analyzing XAG/USD Levels


A thorough analysis of XAG/USD's daily chart uncovers a bearish near-term outlook. Both the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) indicators remain ensconced in negative territory, signaling the predominance of bearish sentiment. Moreover, the currency pair finds itself situated below the significant 20-day, 100-day, and 200-day Simple Moving Averages (SMAs), underscoring the bearish grip on the larger picture. This configuration implies that buyers are facing formidable challenges as they strive to shift the balance in their favor.


Key Levels to Monitor

Support Levels:

  • $22.50

  • $22.30

  • $22.00

Resistance Levels:

  • $23.27 (200-day SMA)

  • $23.50

  • $24.00


XAG USD BlackBull Markets Trading View 14 august 2023

In Conclusion


In a landscape dominated by risk aversion and USD strengthening, the silver market experienced a tumultuous journey, with XAG/USD touching a daily low of $22.35 before settling around $22.60. Market dynamics, characterized by elevated US Treasury yields and a resurgent USD, have set the stage for potential future shifts in Federal Reserve policy. The forthcoming FOMC minutes from July's meeting are poised to unveil crucial insights into the officials' perspective, potentially amplifying volatility across the markets, including the XAG/USD arena.


Frequently Asked Questions

  1. What caused the drop in XAG/USD? The drop in XAG/USD can be attributed to prevailing risk aversion in the markets and the strengthening of the USD, which curtailed the gains of precious metals.

  2. How do US bond yields impact the silver market? Rising US bond yields exert upward pressure on the USD, limiting the potential gains of precious metals like silver.

  3. What is the significance of the Federal Reserve's stance? The Federal Reserve's stance on monetary policy can influence market sentiment and shape the trajectory of asset prices, including XAG/USD.

  4. Why are support and resistance levels important? Support and resistance levels provide valuable insights into potential price movements and are key reference points for traders and investors.

  5. Where can I access more financial insights? For further financial insights and updates, access our resources at https://www.sierackimilosz.com/blog


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