Silver (XAG) is currently in a downtrend, with traders in a "sell the rally" mode. The last completed swing down was from $71.56 to $55.60, and the recent rally to $63.28 failed to reach its 50% retracement level at $63.58. This week's selling pressure turned $63.28 into a new swing top, and the market is now testing the retracement zone at $59.44 to $58.53, which is the current battleground. Aggressive counter-trend traders are attempting to establish a secondary higher bottom within this zone, while aggressive trend traders are pushing the market lower to continue the downtrend under the swing bottom at $55.60.
The focus on Friday will be on the price action and order flow around $59.44 to $58.53. If the buyers win, new money and shorts may push the market higher through the 50% of the all-time high at $60.83, eventually reaching the swing top at $63.28 and the 50% level at $63.58. However, if the sellers regain control and drive the market through $57.22, momentum will increase to the downside, and $55.60 will be in play.
The key factor is volume. Trend traders don't necessarily need high volume to continue the move, but counter-trend buyers do. The upcoming July 28-29 FOMC meeting and next week's CPI data will be crucial in determining the hike probability and its impact on the market. Treasury yields and the dollar will only decrease if inflation data justify the committee's decision to stand pat. The rate trade is currently driving silver prices, and bulls are awaiting a catalyst that has yet to materialize.
In summary, the retracement zone at $59.44 to $58.53 is a critical area for silver traders. A higher bottom within this zone could open up opportunities for the market to reach higher levels, but a breakdown through $57.22 would signal a continuation of the downtrend and a potential target at $55.60. The market's direction will be influenced by volume and the outcome of the FOMC meeting and CPI data, as these factors will determine the likelihood of a rate hike and its impact on silver prices.
