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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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Silver set for a sharp move but which direction

Article By: ,  Financial Analyst
May 17, 2016 6:55 PM

On the back of today’s US macro data, which have all been stronger than expected, you would expect the dollar to rally. After all, the Consumer Price Index (CPI) rose by 0.4% in April, housing starts jumped 6.6% from a month earlier, industrial production increased 0.7% month-over-month and capacity utilization rose to 75.4 per cent. Yet the dollar has actually weakened while stocks have drifted lower. Buck-denominated precious metals have therefore shone.

When positive data – like those mentioned – fail to underpin the dollar then one has to wonder what actually will. Equally confounding is silver’s ability to bounce back despite forming a bearish-looking pattern on its daily chart yesterday: a long-legged doji candlestick. This candlestick pattern clearly shows indecision as price was unable to make a decisive move in either direction before closing where it had opened. Admittedly, the trading day has not ended yet and a lot could change as we head into the second half of US session.

But if silver were to break above yesterday’s bearish-looking candlestick pattern, this would prove a lot of the existing sellers wrong. If so, it would also mean that silver will break out of its bullish channel or flag pattern to the upside. This would be a further bullish development, which could potentially lead to further follow-up technical buying towards the resistance levels or bullish targets shown on the chart.

However, if the low from yesterday’s candle breaks, then silver would remain inside the channel, potentially paving the way for a more significant drop towards supports such as $16.85, $16.75 or even the key $16.15-$16.35 area.

So, a lot now depends on the direction of the breakout. Traders may wish to wait for this breakout to happen before potentially looking for a trade in the direction of the break. One final word of caution is that the markets have not been trending well recently and we have seen lots of fake breakouts. It may therefore pay to be a bit more patient and wait for confirmation.

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