Silver Price Forecast: XAGUSD plunges below $18.50 on high US bond yields

• Silver plummets during the week, extending its losses by almost 5%.
• Risk-aversion, rising US Treasury yields, and a buoyant US dollar weighed on XAGUSD.
• Fed’s Waller and Bullard backed a 75 bps rate hike; money market futures expectations for 100 bps fall.

Silver (XAGUSD) is tumbling on Thursday during the North American session as US Treasury yields rise, led by 2s and 5s, keeping the US 2s-10s yield curve inverted for the eighth consecutive day, meaning traders’ recession fears are increasing. However, high US inflation readings on the consumer and producer side continued their upward trajectory, making the Fed’s job even harder. At the time of writing, the XAGUSD is trading at $18.35, losing more than 4% in the day.

Pessimism surrounds the markets; cheered by US dollar bulls

Global equities remain under pressure, extending their fall as investors seek safety. Weighed by a hot US Producer Price Index for June, topping above 11% YoY, added fuel to higher inflation expectations, following Wednesday’s CPI at 41-year highs above the 9% YoY threshold.

Investors’ reaction to that can be seen in the greenback’s strength. The US Dollar Index, a gauge of the buck’s value vs. six currencies, reached a 20-year high around 109.200s, though, at the time of writing, it sits at 108.765, up 0.69%. US T-bond yields are also rising, exerting further downward pressure on precious metals, with the US 10-year T-note coupon at 2.959%, up two bps.

In the meantime, the Fed parade continues with Fed’s Waller, Collins, and Bullard crossing wires. Fed’s Waller and Bullard still back a 75 bps rate hike. Waller added that if retail sales and housing data come stronger than expected, he would lean toward a higher July hike. In the meantime, the newest Boston Fed President, Susan Collins, said that inflation is too high and addressing it is her priority. Traders should notice that Collins is a voter in 2022 and will participate in the July FOMC meeting.

Also read: Fed’s Waller: Markets may have gotten ahead of themselves on 100 bps hike in July

XAGUSD traders should also take clues about gold prices, which remain heavy at around $1709 a troy ounce. At the same time, the Bloomberg Commodity Index is falling almost 2%, portraying traders’ worries about current and future demand, spurred by China’s Covid-19 reemergence during the week.

Also read: Fed's Bullard calls for a 75bp hike in July

What to watch

On Friday, the US economic docket will feature Tier 1 data, with Retail Sales, the NY Empires State Manufacturing Index, and the University of Michigan (UoM) Consumer Sentiment survey.

XAGUSD Key Technical Levels