Silver (XAG) Forecast: Silver Bulls Eye FOMC Minutes After Jobs Shock

Payrolls Miss Finally Broke Silver Loose

Spot Silver (XAGUSD) finished higher for the week ending July 3 after spending all of June going nowhere but down. Stronger economic data through the month kept yields climbing and gave the rate hawks everything they needed to keep silver pinned. Thursday’s payrolls report broke that in one session.

The short side was crowded heading into Thursday morning, which is exactly why the move was as sharp as it was. Positioning had been leaning hawkish all month because the data supported it. A miss that wide with downward revisions on top of it caught the wrong people on the wrong side. The entire weekly gain came from Thursday’s session and held through Friday’s close.

57,000 Jobs and Downward Revisions Gutted the Hawks

June payrolls came in at 57,000, roughly half of what the street expected, and the revisions to prior months made it worse. Unemployment ticked down to 4.2% and the market barely noticed. A headline miss that wide with confirming revisions underneath it does not leave room for debate about where rates are going next.

Fed funds futures repriced within hours. July hike odds collapsed, September odds dropped sharply, the dollar posted its worst week in months, and Treasury yields broke lower across the curve. The speed of the repricing told you everything about how one-sided the positioning had been heading into the number.

Nobody at the Fed Fought the Move

Fed Chair Kevin Warsh did not push back. His recent remarks already acknowledged that inflation expectations have come down, and the market read that as the door closing on another hike. No other committee members came out with hawkish language during the week either. That silence is the part I find most interesting. After a payrolls miss this significant, someone at the Fed usually steps up to remind the market that one report does not change the outlook. Nobody did that this time, and the repricing ran without resistance all the way through Friday.

Wednesday’s Minutes Will Test the Rate Bet

Every data release between now and the late July meeting carries more weight after Thursday. Weekly claims, inflation prints, anything connected to the rate outlook gets a reaction because the market just demonstrated how fast it will move when the data cooperates.

The June 16-17 FOMC minutes come out Wednesday, and that is the only event this week with enough weight to shift rate expectations. The committee held steady at that meeting, but the dot plot still left room for at least one more hike this year. The question is whether there was real division inside that room or whether the hold was unanimous. Division extends last week’s move. A committee that was uniformly hawkish three weeks ago gives traders a reason to pull back on the rate bet and wait for the late July meeting before committing further.

That July meeting carries more weight now than it did a week ago. Warsh’s press conference and the committee statement will tell you whether the Fed is comfortable watching the labor market cool or whether inflation still overrides everything else in their thinking. The payrolls miss opened a window for silver. Wednesday’s minutes and the July meeting decide whether it stays open.

Weekly Spot Silver (XAGUSD) Technical Analysis

Spot Silver closed higher last week with the market consolidating inside the previous week’s range, suggesting investor indecision and impending volatility. The new week starts with the market in a down trend but testing a value area that could fuel the start of a counter-trend trade.

Trend traders are leaning on the swing chart and the 52-week moving average. The lower top, lower bottom chart pattern on the weekly swing chart is controlling the downtrend. Helping to support the trend is the fresh breakdown under the 52-week moving average.

If we call the long-term range $0.00 to $121.67 then its 50% to 61.8% zone at $60.83 to $46.48 is the key value area to watch for new buyers. After all, if you don’t own it near historical lows and you didn’t want it at historical highs, then where do you want to own it? My choice as a long-term investor is inside the $60.83 to $46.48 zone.

Short-term trend traders can see the same zone on their charts, but the reaction may be different. Swing chart traders are willing to give back some in order to get more. A breakdown under $55.60 will reaffirm the downtrend on the swing chart with the swing bottom at $45.55 the next target. This is a good area to watch because it forms a cluster with the 61.8% level at $46.48.

Some swing traders may choose to forego waiting for a breakout over $89.38 to change the trend. Let’s face it, that’s a pretty good give back. So I think the key to shifting momentum to the upside over the short-term is recapturing the 52-week moving average at $63.47.

My setup this week calls for support inside the long-term retracement zone at $60.83 to $46.48. Ideally, I’d like to see the $55.60 low hold too. Crossing to the strong side and sustaining the rally over the long-term 50% level at $60.83 will also deliver a sense of new buying. But it is going to take a convincing rally through the 52-week moving average at $63.47 to convince me that strong long-term buyers have returned.

What to Watch

Thursday’s payrolls miss pulled the urgency out of the summer rate hike case, and nobody at the Fed stepped in to put it back. Wednesday’s FOMC minutes from the June 16-17 meeting are the next catalyst. Evidence of division inside the committee extends the move from last week and gives silver room to keep running. Warsh’s acknowledgment that inflation expectations have eased adds to that case. The repricing ran all week without any hawkish resistance from the committee, and that holds unless the minutes show a discussion that reads very differently from how the market interpreted the hold.

The weekly chart shows the market consolidating inside the prior week’s range while testing a long-term value zone. A sustained move back above the 52-week moving average at $63.47 would signal that buying is becoming more aggressive. Failure to reclaim it leaves the weekly downtrend intact.

More Information in our Economic Calendar.