On Monday, silver drew some dip-buying, but there was no substantial follow-through.
The development of a rectangle indicates that there will be a brief period of consolidation before the following leg down.
A bearish breakdown will be reaffirmed if the price stays below the $25.70 confluence.
During the early European session, silver reversed an intraday loss to the $25.80 mark and moved closer to day highs. The rally, however, failed to gain traction and stalled near the $26.25-30 resistance zone. The indicated resistance level coincides with the 50% Fibonacci level of the $23.78-$28.75 move up and should now serve as a significant pivotal point for intraday traders.
Over the last week or so, the XAG/USD has been bouncing in a narrow zone between the 50 percent Fibo. and the 61.8 percent Fibo. levels. On short-term charts, range-bound price movement is represented by the creation of a rectangle. Given the recent decline, the rectangle might be classified as a bearish consolidation phase, implying further deterioration.
The fact that oscillators on the daily chart are holding deep in gloomy territory adds to the dismal view. Before putting further negative bets, traders are likely to wait for a sustained breach below the $25.70 level (61.8 percent Fibo.). The latter corresponds with the crucial 200-day SMA, which, if forcefully broken, will pave the way for more depreciation.
The next important support level is at $25.55, before the XAG/USD declines to the key $25.00 psychological barrier on its way to the $24.80 horizontal level. If there is some follow-through selling, the white metal will be exposed to a further drop towards $24.00. The commodity’s downward trajectory might eventually drive it down to its YTD lows, which were around $23.80-75 in March.
A persistent rally over the trading range obstacle at the $26.25-30 area, on the other hand, would neutralize the bearish view and prompt some short-covering. The XAG/USD might then attempt to continue on its current gains and push higher towards an intermediate resistance zone near the $26.55-60 supply zone. The momentum could continue to build towards the $26.85 area, or the 38.2 percent Fibo level.
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