Silver (XAG) Forecast: Traders Prepare for Major Support Test at $26.62

Current Market Situation

Silver (XAG) prices have continued their decline, extending a four-session losing streak that has seen the metal drop by over 10%. Trading below key technical levels, silver has slipped under the short-term pivot at $28.22, which now serves as initial resistance. More critically, the market is trading below the 50-day moving average at $29.13, signaling a deeper shift in sentiment. On the downside, the next major support targets are the long-term pivot at $27.22 and the 200-day moving average at $26.62.

Key Factors Driving the Decline

A combination of profit-taking, a stronger U.S. dollar, rising Treasury yields, and disappointing economic data from China have created a bearish environment for silver. Investors have been taking profits after silver's recent rally, particularly ahead of crucial U.S. labor market data due later this week. This data is expected to provide clearer insight into the Federal Reserve’s next move on interest rates, with lower rates typically being supportive of silver.

Market Sentiment and Federal Reserve Speculation

Currently, the market is pricing in a 69% chance of a 25-basis-point cut and a 31% probability of a 50-basis-point cut at the Fed’s September meeting. The possibility of a less aggressive rate cut could continue to pressure silver prices. Recent weakness in the U.S. manufacturing sector and broader sell-off in tech stocks have added stress to silver prices.

Potential for a Rebound

While the current outlook for silver is bearish, a potential rebound cannot be ruled out. If upcoming U.S. labor data surprises to the downside, it could reignite expectations of a more aggressive rate cut by the Fed, potentially triggering a rally in silver.