Technical Analsys
Technical Analysis &XAGAUD : 2019-05-07
Preparing for the meeting of the Reserve Bank of Australia
In this review, we suggest considering the personal composite instrument (PCI) XAG/AUD. It reflects the price dynamics of silver against the Australian dollar. Is there a possibility for the XAG/AUD to rise?
Such a dynamic is observed in case of the strengthening of silver and weakening of the Australian dollar. The next meeting of the Reserve Bank of Australia (RBA) will be held on Tuesday, August 7. The probability of a rate cut to 1.25% from the current level of 1.5% is 40%. Let us recall that both the real decline, and the RBA’s statements about the intention to lower it, can have a negative impact on the exchange rate of the Australian dollar. An additional factor may be the aggravation of trade relations between the US and China after US president Donald Trump’s unexpected announcement of a possible increase in import duties on Chinese goods. Because of this, the next round of trade negotiations between the two countries, scheduled for May 8, may be even postponed. Concerning the growth prospects of silver prices, there can be noted a reduction in world production by 2% last year and a continuing global shortage of this metal. An additional factor may be the alignment of growth rates of silver prices after their strong lag in comparison with more expensive gold. The gold/silver ratio reached the high from October 2008. Relatively cheap silver strongly attracts jewelry buyers. In 2018, silver consumption by the global jewelry industry increased by 6% to 61.1 million ounces.
On the daily timeframe, XAG/AUD: D1 has moved from the downtrend to the neutral one. A number of technical analysis indicators formed buy signals. The further price increase is possible in case of high demand for silver and easing of the monetary policy by the Reserve Bank of Australia.
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The Parabolic Indicator gives a bullish signal.
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The Bollinger® bands have narrowed, which indicates low volatility. Both Bollinger bands are titled upward.
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The RSI indicator is above 50. It has formed a positive divergence.
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The MACD indicator gives a bullish signal.
The bullish momentum may develop in case XAG/AUD exceeds the last fractal high at 21.45. This level may serve as an entry point. The initial stop loss may be placed below the 200-day moving average line, the Parabolic signal, the three last fractal lows and the lower Bollinger band at 20.65. After opening the pending order, we shall move the stop to the next fractal low following the Bollinger and Parabolic signals. Thus, we are changing the potential profit/loss to the breakeven point. More risk-averse traders may switch to the 4-hour chart after the trade and place there a stop loss moving it in the direction of the trade. If the price meets the stop level (20.65) without reaching the order (21.45), we recommend to close the position: the market sustains internal changes that were not taken into account.
Summary of technical analysis
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Position |
Buy |
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Buy stop |
Above 21.45 |
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Stop loss |
Below 20.65 |
Market Overview
Trump tariff hike threat weighs on markets
Dollar recovers part of Friday loss
US stock market gave back some of Friday gains on Monday on renewed concerns of possible negative impact of prolonged US-China trade dispute after President Trump threatened to hike tariffs on $200 billion of imports from China to 25% from 10%. The S&P 500 lost 0.5% to 2932.47. Dow Jones Industrial Average slipped 0.3% to 26438.48. The NASDAQ Composite slid 0.5% to 8123.29. The dollar weakening reversed: the live dollar index data show the ICE (NYSE:ICE) US Dollar index, a measure of the dollar’s strength against a basket of six rival currencies, rose 0.1% to 97.547 but is lower currently. Futures point to lower openings for indexes today.
CAC 40 underperforms other European indexes
European stocks slumped on Monday after surprise Sunday tweet by President Trump threatening to raise tariffs on imports from China. Both GBP/USD and EUR/USD turned lower but are rising currently. The Stoxx Europe 600 index declined 0.9% led by auto maker shares. The DAX 30 lost 1% to 12286.88. France’s CAC 40 tumbled 1.2%. London stock exchange was closed for a holiday.
Shanghai Composite leads Asian indexes gains
Asian stock indices are mixed today. Nikkei closed 1.5% lower at 21923.72 despite renewed yen slide against the dollar. Markets in China are recovering after news China is still expected to send a delegation to Washington this week for talks starting Thursday — a day later than originally planned: the Shanghai Composite Index is up 0.8% and Hong Kong’s Hang Seng Index is 0.5% higher. Australia’s ASX All Ordinaries Index recovered 0.2% despite Australian dollar resumed climb against the greenback as the Reserve Bank of Australia left interest rates unchanged at 1.5% when some expected a rate cut given recent poor performance of Australian economy.
Brent down
Brent futures prices are edging lower today. Prices recovered yesterday as Middle East tensions rose on news US sent bombers and a carrier group to the region over the weekend: July Brent crude rose 0.6% to $71.24 a barrel on Monday.