Silver Price Analysis: XAG/USD advances amid reduced US yields, dovish Fed outlook

• The XAG/USD  rose near the $23.20 level, challenging the 100-day SMA.
• Despite hot CPI data, the market maintains high dovish bets on the Federal Reserve.
• The 2-year bond yield hit fresh lows since May.

Starting the week, the Silver (XAG/USD) is seeing an uplift, trading around the $23.20 mark. The upward move is primarily driven by decreased US Yields and dovish expectations regarding the Federal Reserve (Fed), which have helped steer the metal upward.

Currently, data from the CME FedWatch Tool displays a high chance of interest rate reductions in March and May, calculated at 70% and 66%, respectively. It's worth noticing that the market’s dovish bets may be exaggerated as inflation in the US slightly picked up in December, and the US economy remains overheated, which may present a threat to the Fed in its battle against inflation. Investors may be discounting that the bank won’t risk an economic downturn in a year with elections.

Presently, US Treasury yields are sharply down. The 2-year rate is trading at 4.14%, whereas the 5-year and 10-year rates are observed at 3.83% and 3.96%, respectively. This pushes the price of the non-yielding metal up as the opportunity cost of holding them decreases.

On Wednesday, the US will release Retail Sales Figures from December and the Fed the Beige Book, which may affect the metal’s price dynamics..

XAG/USD levels to watch

The daily chart suggests that the metal has a bearish outlook in the short term despite the upward movements. From a technical perspective, the Relative Strength Index (RSI) is flat, indicating a lack of momentum in either direction. However, its position in the negative territory suggests that sellers have been more active recently.

The Moving Average Convergence Divergence (MACD), evidenced by flat red bars, signals a bearish bias. While the MACD itself is flat, indicating no strong momentum, the color of the histogram's bars reinforces the presence of sellers in the market.

The Simple Moving Averages (SMAs) further supplement the bearish narrative. The metal’s price is trading below the 20, 100, and 200-day SMAs, a prevailing indication that bears are in control of the bigger picture.

XAG/USD daily chart