Fast start or false start for commodities Silver
Generally I am reluctant to enter new trades during the first week of the New Year when liquidity is notoriously poor. This is because many professional traders who provide a large chunk of the volume, often spend time away from screens to be with friends and family and to freshen up for the year ahead.
For less experienced traders unsure of the implications of poor liquidity, look no further than the chart of AUD/JPY from 2 years ago. On January 3rd, 2019 in the blink of an eye, AUD/JPY plunged almost 500 pips before an equally speedy recovery.
Compounding this weeks liquidity challenges is the Georgia Senate run-off (5th Jan) and US Electoral College vote (6th Jan) to confirm the US Presidential election result.
The Republicans need to win at least one of the two Georgia runoff elections to retain control of the Senate. The polls (for what they are worth) are now showing both seats favouring the Democrats.
A Democrat-controlled House and Senate would likely pave the wave for further stimulus in 2021, as well as tax hikes. A combination thought to be negative for the U.S dollar, supportive of commodities, and neutral for equities.
At the Electoral College vote (Thursday morning AEDT) a group of Republican Senators supported by Donald Trump is expected to mount a last-ditch attempt to overturn the election result. While their actions are unlikely to change the course of events, it could bring volatility.
Despite Silver’s 2.50% gain today, the jury remains out as to whether the rally will prove to be a fast start or a false start.
Technically, the move from the $21.89 low is now eyeing the downtrend resistance $27.30/40ish, coming from the August $29.85 high. A sustained break above $27.40ish would confirm the bullish bias and should result in a retest of the August $29.85 high.
Keeping in mind, should Silver fail to see a sustained break above the $27.30/40 resistance and then fall back below near-term support $26.10/80ish, it would warn of a deeper retracement towards $25.00.
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