XAU Trader Focus Shifts to US Consumer Inflation Data

Overview

Silver prices, after a steady decline, showed signs of a rebound, drawing an intricate picture of the interplay between U.S. labor market, inflation, and the Federal Reserve’s decisions. Silver prices bottomed out at a nearly one-month low before a slight upturn on Friday, indicating a potential price reversal.

Lower Jobs Growth Impact

The downturn in silver prices was influenced by the recent slowing U.S. jobs growth, which simultaneously knocked the dollar and bond yields from their recent highs. The Labor Department reported fewer than expected new jobs in July, at 187,000 compared to the predicted 200,000. This marked the second consecutive month that job growth fell short of expectations after a 15-month streak of outperformance.

Labor Market Tightness

However, the jobs report wasn’t all negative. Average hourly earnings rose by 0.4% for the month, translating to an impressive annual pace of 4.4%. This beat estimates and suggests that demand for labor remains robust. It’s posited that the slowing pace of job additions could stem from a labor supply issue, rather than reduced demand, hinting at tightness in the labor market.

Federal Reserve Response

Investors and traders now turn their attention to the Federal Reserve’s potential response. The mixed jobs report paints a complex picture, with slowed job growth advocating for a pause on rate hikes, while increased wage pressures highlight potential inflation risks. Following the last Fed meeting, Chairman Jerome Powell indicated that decisions on interest rates hinge on such economic data.

Short-Term Outlook:  Bearish Until Dollar Tops

Looking forward, investors eagerly anticipate the upcoming July consumer price index (CPI) release, which could significantly influence the Fed’s September meeting decisions. However, the recent cooling in the labor market signals that the latest rate hike may mark the end of the current tightening cycle. The response of non-yielding silver, often viewed as a safe haven against inflation, will be key to watch. If the U.S. dollar weakens further, it could provide silver the needed traction for a significant rebound. But until then, a bearish outlook persists for silver.

Technical Analysis

The current silver price at $23.48, is slightly lower than the previous 4-hour price of $23.52, indicating a minor dip. The price is below the 200-4H moving average of $23.72, signifying a potential bearish market sentiment. This perspective is reinforced as the price is also below the 50-4H moving average at $24.18, suggesting a downward trend.

The 14-4H RSI at 34.43 shows the market is approaching an oversold state, which could eventually lead to a rebound.

However, the current price is hovering above the main support area between $22.70 and $22.28, and considerably below the resistance area of $25.00 to $25.27. This consolidation within the main support and resistance zones indicates a bearish short-term outlook, with potential for a future bounce-back.

Oversold conditions could attract buyers or encourage profit-taking, leading to a meaningful short-covering rally. Meanwhile, a breakout over the 200-4H moving average could indicate a shift in momentum.