Fast start or false start for commodities: Silver

The trading scoreboard has reset and it appears commodity traders are eager to make a fast start in 2021.

Charts (5)

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.

Fast start of false start for commodities: Silver

Source Tradingview. The figures stated areas of the 30th of December 2020. Past performance is not a reliable indicator of future performance.  This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.