Silver Price Forecast: XAGUSD falls from weekly highs, above the 50-DMA ahead of US inflation data

• Silver price drops as US bond yields escalate while the US dollar weakens.
• Sentiment remains fragile, shifting sour since the European equities close.
• Silver’s price action to remain choppy ahead of the US CPI report.

Silver price retreats from weekly highs reached on Monday at $20.74 but is exchanging hands near the August 9 lows at $20.42 as the Asian Pacific session starts. At the time of writing, XAGUSD is trading at $20.52, slightly up 0.15%.

Silver drops albeit a soft US dollar

Wall Street ended Tuesday’s session in the red, while Asian equities point to a lower open. The greenback weakens, as shown by the US Dollar Index at 106.302, down 0.07%, while the US 10-year bond yield rises two bps at 2.783%.

Sentiment shifted sour due to several reasons. Firstly, last Friday’s strong US jobs report remains in traders’ minds, putting recession fears away, as shown by money market futures STIRs, portraying a 88% chance of a Federal Reserve 75 bps rate hike. That said, alongside hawkish Fed commentary, policymakers have reiterated the Fed’s commitment to bringing inflation down. Most members have been vocal about going 75 bps in the next meeting, while Cleveland’s Fed Mester and Chicago’s Fed Evans remain open to 50 or 75 bps.

Furthermore, the US inflation figures looming keeps investors uneasy. The US Consumer Price Index (CPI) for July is expected at 8.7% YoY, less than June’s 9.1%, while core CPI figures are foreseen at 6.1% YoY vs. 6.2% in the previous reading.

After Wednesday’s main event, XAGUSD traders should expect feedback from the Chicago Fed President Charles Evans and Minnesota Fed’s Neil Kashkari, which would cross the wires after the release. By Thursday, the San Francisco Fed President, Mary Daly, will cross wires on Bloomberg.

Silver (XAGUSD) scenarios for Wednesday’s US CPI

Therefore, XAGUSD traders should be aware of important US economic data. If the CPI tops expectations, we could see a reaction of US bond yields rising, underpinning the greenback higher, consequently precious metals prices falling. Otherwise, if US inflation shows signs of tempering, silver and commodity prices could increase, while US bond yields and the greenback fall.

Silver (XAGUSD) Key Technical Levels