XAG/USD waits patiently for Fed cues

Silver (XAG/USD) price wavered at the highest level since February 29 ahead of the upcoming US inflation data. It was trading at $21.67 on Tuesday, which was about 8.95% above the lowest point this week. Gold, palladium, and platinum have also risen in the past few days.

Federal Reserve in focus

Silver price has risen in the past few days as investors remain focused on the actions of the Federal Reserve. Most analysts believe are torn about what to expect in the coming months after the collapse of Silicon Valley Bank (SVB) and Signature Bank.

Before their collapse, analysts believe that the Federal Reserve would hike interest rates by 0.50% next week. Now, fearing more contagion risks, there is a likelihood that the Fed will hike rates by either 0.25% or not hike at all. This is evidenced by the fact that treasury yields have retreated in the past few days.

Silver price action is also coinciding with the rebound of the US dollar index. The dollar has jumped by 0.20% in the past 24 hours to about $103.38. It remains slightly below last week’s high of $105.

The next key data to watch will be the upcoming American consumer price index (CPI) data. Economists believe that the country’s inflation remained above the Fed’s target of 2.0%. On a month-on-month basis, analysts expect that inflation rose to 0.40% in February while core consumer inflation remained at 0.4%.

On a year-on-year basis, analysts believe that the headline CPI dropped to 6.0% while core CPI dropped to 5.5%. These numbers will still be above the key target at 2.0%, which is the Fed target. Therefore, there is a likelihood that the Fed will be between a rock and a hard place.

On the one hand, it needs to aggressively hike interest rates to fight inflation. And on the other hand, it needs to be cautious about breaking things during its tightening phase. 

Silver price forecast

XAG/USD chart by TradingView

The XAG/USD price has been in a strong bullish comeback as investors moved to safe havens. It is now hovering at the 38.2% Fibonacci Retracement level. Silver has also risen above the key resistance point at $21.32, the highest point on March 6. Also, it has moved above the 50-period moving average.

Silver is also forming a bullish flag pattern. Therefore, there is a possibility that the coin will likely continue rising as buyers target the key resistance at $22.20 (50% Fibonacci Retracement level).