Analys från DailyFX
Silver Prices Seek Support, Rebounds Likely to Be Short-lived and Here is Why
What’s inside:
- Silver prices moving into support zone of importance
- A meaningful bounce could develop, but…
- It is likely to be short-lived given the extreme positioning present in the futures market
The price of silver went wild during all of April, but has been tamed considerably during the month of May, giving back more than half of those gains. The multi-week decline is bringing silver back to a key point in that April ride higher – the neckline of a broad inverse head-and-shoulders which came shy of its reaching its measured move target around the 18.40 mark.
The area surrounding 16 is an important one as it has held clear influence on the price of silver dating back to September of last year. The risk of a meaningful bounce is increasing as it enters this critical area, but the view at this time is any bounce which should unfold will not likely be sustained.
Here is why.
Market positioning in the futures market, just as it is in gold (discussed here), is highly unfavorable for a price advance until net positioning normalizes. Below, the chart shows the record net long position held by large speculators (hedge funds, trend followers), with a nearly equally impressive net short position currently held by commercial hedgers.
Silver Market Futures Positioning
An unwinding of this extreme situation is set to put a damper on precious metals for the foreseeable future. This doesn’t mean the metals can’t bounce, though, it just means upside gains are expected to be unsustainable.
With that said, in the near-term a relief bounce could unfold as support takes hold. It is presently trading higher modestly at the time of this writing. If 16 is taken out, then we will watch how silver responds to the trend-line off the January lows.
Silver (XAGUSD) Daily
Handling this from a trading perspective: If already floating a profit on a short-trade, buttoning up trailing stops is a prudent decision at this juncture. Initiating fresh short positions with support so close at hand presents a potentially dangerous proposition; even though positioning suggests lower prices, sharp bounces, even if short-lived, put one at risk of taking a loss before seeing further declines. Ideally, a bounce back towards the upper parallel of the channel off the May 2 peak presents trouble and offers up an entry to join the trend lower. Aggressive counter-trend traders may look to play a bounce if silver ‘acts right’ around support, but keep in mind the bounce is likely to not last. By acting right, we mean a solid probe of support followed by a sharp daily reversal.
Find out how you can improve your trading through our guide, “Traits of Successful Traders”.
—Written by Paul Robinson, Market Analyst
You can follow Paul on Twitter @PaulRobinsonFX, or email him directly at probinson@fxcm.com.
What’s inside:
- EURUSD broke the ‘neckline’ of a bearish ‘head-and-shoulders’ pattern, April trend-line
- Resistance in vicinity of 11825/80 likely to keep a lid on further strength
- Targeting the low to mid-11600s with more selling
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Coming into last week we pointed out the likelihood of finally seeing a resolution of the range EURUSD had been stuck in for the past few weeks, and one of the outcomes we made note of as a possibility was for the triggering of a ’head-and-shoulders’ pattern. Indeed, we saw a break of the ’neckline’ along with a drop below the April trend-line. This led to decent selling before a minor bounce took shape during the latter part of last week.
Looking ahead to next week the euro is set up for further losses as the path of least resistance has turned lower. Looking to a capper on any further strength there is resistance in the 11825-11880 area (old support becomes new resistance). As long as the euro stays below this area a downward bias will remain firmly intact.
Looking lower towards support eyes will be on the August low at 11662 and the 2016 high of 11616, of which the latter just happens to align almost precisely with the measured move target of the ‘head-and-shoulders’ pattern (determined by subtracting the height of the pattern from the neckline).
Bottom line: Shorts look set to have the upperhand as a fresh month gets underway as long as the euro remains capped by resistance. On weakness, we’ll be watching how the euro responds to a drop into support levels.
For a longer-term outlook on EURUSD, check out the just released Q4 Forecast.
EURUSD: Daily
—Written by Paul Robinson, Market Analyst
You can receive Paul’s analysis directly via email bysigning up here.
You can follow Paul on Twitter at@PaulRobinonFX.
Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.
EURUSD: Retail trader data shows 37.3% of traders are net-long with the ratio of traders short to long at 1.68 to 1. In fact, traders have remained net-short since Apr 18 when EURUSD traded near 1.07831; price has moved 9.6% higher since then. The number of traders net-long is 15.4% lower than yesterday and 16.4% higher from last week, while the number of traders net-short is 0.4% higher than yesterday and 10.5% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURUSD prices may continue to rise. Positioning is more net-short than yesterday but less net-short from last week. The combination of current sentiment and recent changes gives us a further mixed EURUSD trading bias.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
To be added to Christopher’s e-mail distribution list, please fill out this form
Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.
GBPUSD: Retail trader data shows 38.2% of traders are net-long with the ratio of traders short to long at 1.62 to 1. In fact, traders have remained net-short since Sep 05 when GBPUSD traded near 1.29615; price has moved 3.4% higher since then. The number of traders net-long is 0.1% higher than yesterday and 13.4% higher from last week, while the number of traders net-short is 10.6% lower than yesterday and 18.3% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBPUSD prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current GBPUSD price trend may soon reverse lower despite the fact traders remain net-short.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
To be added to Christopher’s e-mail distribution list, please fill out this form
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