XAG/USD (Silver) 1H Chart 9/2/2012 8:55PM EDT


After consolidating for most of last week (8/27-8/31) in a flag pattern, silver surged after Bernanke's speech at Jackson hole gave the market more expectation of QE. The 1H chart shows silver popping above the flag pattern after the risk event. The 1H chart above shows the breakout swing stalling as we begin the new week (9/2 in the US, but 9/3 in the Asian session as the global session started during morning in Asia).

Monitoring a throwback:
The chart also shows where the market should really be held above - the 61.8% retracement, 30.80 level. A break below this level introduces the case for a false breakout to the upside, especially if the 1H RSI also falls below 40, reflecting loss of bullish momentum after the breakout swing. A bullish breakout should really respect the previous resistance area 31.20-31.25, or maybe down to 38.2% retracement at 31.16, as support if a bullish continuation is at hand in the short-term.

Breakout implication:
The break of this flag pattern seen in the 1H chart also pushed above a declining trendline seen in the weekly chart. Like gold, silver has been trading in somewhat of a declining triangle, and both previous metals are clearing the declining trendlines (though gold lead the breakout by a week).

The weekly chart shows the next resistance pivots, at 35.67 and 37.50, the next targets if the current breakout is to extend. The last couple of times the market bounced off the 26.12-26.15 area, the subsequent bull runs did indeed push to these levels, making this a target area for an analogous push. This is also the 38.2%-50% retracement of silver's bearish move from 49.85 to 26.12, a reasonable target in the short-medium term, even if the market is flat, or turning bearish in the long-term.

Risk events:
As seen in forexfactory, some key risk events this week are
1) ECB interest rate meeting, and Draghi's speech
2) NFP
We also have a key FOMC meeting next week. Generally, risk appetite suppresses the USD and can give silver a boost. However, risk aversion might not hurt silver if it is from the US (like a poor NFP), because that can heighten QE3 expectation, which should really help commodities and metals priced in USD like XAG/USD.

XAG/USD (Silver) Weekly Chart 9/2/2012


Fan Yang CMT is a trader, analyst, educator and the Chief Technical Strategist FXTimes - provider of Forex News, Analysis, Education, Videos, Charts, and other trading resources.

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