Silver Price Forecast: XAG/USD trips down below $20.50 on high US bond yields

• Silver price retraces from two-month highs while the US dollar recovers.
• Fed’s Daly: The US central bank is “resolute” on raising rates to tame inflation.
• US Services activity decelerates yet remains to expand despite US Federal Reserve tightening cycle.
• XAG/USD is neutral-biased and faced support at the 100-day EMA at $20.00.

Silver price retreat from two-month highs reached on Tuesday at $21.23 a troy ounce, as investors’ expectations of a Fed pivot fade, as US equities are tumbling, while the greenback gains traction after five days of losses. At the time of writing, XAG/USD is trading at $20.35, below its opening price by 3.15%.

XAG/USD falls due to elevated US T-bond yields

Investors’ mood shifted sour as US equities dropped. Of late, Fed officials crossing wires, led by the San Francisco Fed President Mary Daly, said that the Fed might step in if there’s an event of market dislocation while emphasizing that markets are right, and the Fed is “resolute” on raising rates further to bring inflation down.

“We definitely don’t raise rates until something breaks; we actually are forward-looking,” Daly said in a  Bloomberg TV interview.

In the meantime, US economic data revealed that service sector activity showed some resilience, with the ISM Non-Manufacturing PMI rising to 56.7, less than August’s reading but above expectations. Contrarily, the S&P Global Services and Composite indices remained in contractionary territory, each at 49.3 and 49.5.

Earlier, the September US ADP National Employment data depicted that the economy added 208K private jobs to the economy, which could be a prelude for the US Nonfarm Payrolls report on Friday.

At the same time, the US Department of Commerce reported that the US Trade deficit narrowed by 4.3% to $67.4 billion in August, the lowest since May 2021.

Elsewhere the US Dollar Index, a measurement of the buck’s value vs. a basket of peers, rallies more than 1%, reclaiming the 111.00 figure at 111.480, reflecting higher US Treasury bond yields. The US 10-year benchmark note rate edged up by almost 15 bps, at 3.779%, as market participants began to price in a 75 bps rate hike at Fed’s November meeting.

What to watch

The US economic calendar will feature Initial Jobless Claims on Thursday, alongside Fed speaking, led by Chicago’s President Charles Evans, Cleveland’s Loretta Mester, and Board Members Lisa Cook and Christopher Waller.

Silver (XA/USD) Technical Analysis

XAG/USD prices had rallied more than $2 in the last three days, except for today’s price action. On its way north, XAG/USD cleared the 20, 50, and 100-day EMAs and tested the 100-day at $20.00 but jumped towards current spot prices. It should be noted that the 20-day EMA is closing its distance from the 50-day EMA, and once it crosses over, it will keep silver buyers hopeful for higher prices. Therefore, XAG/USD is neutral-biased unless it breaks above the 200-day EMA at $21.92.