FX.co ★ XAG/USD, SILVER

Silver (XAG/USD) maintains momentum from Thursday's rally, trading around $57.60 in European time on Friday. The commodity gains traction as the US Dollar (USD) remains weak amid AI-driven risk aversion. At the time of writing, the US Dollar Index (DXY), which measures the Greenback's performance against six other major currencies, dips 0.1% to trade near 101.90. The DXY Index has sharply corrected over the last two days from its over-a-year high of 102.95, reached after the US Consumer Price Index (CPI) release. Technically, a weak US dollar makes silver a rewarding risk/reward trade for investors. Economists at DBS Group Research believe the market's response to the latest upside shock in US CPI has exposed cracks in the recent rise in the Dollar. Indeed, "the USD's inability to hold its gains in the wake of the positive surprise in US CPI readings is a cause for concern regarding the sustainability of its rise," as investors reversed the initial rise in the Dollar and US Treasury yields while reconsidering the policy implications. In particular, "the decline in Treasury yields and the expected Fed rate hikes indicate that investors are concerned about growth and earnings pressures that could arise as a result of further tightening." At the same time, the "political uncertainty also contributed to the headwinds." In particular, with the midterm elections looming, DBS notes that "investors wonder whether the benign assumption that Republicans would be able to maintain their majority in the Senate and lose their majority in the House was accurate." According to DBS, "There is an increasing probability of a Democratic sweep in Congress, and there are worries about regulatory oversight, policy paralysis, and the sustainability of the high valuations in equities." For DBS, this scenario makes it increasingly difficult to sustain the simple USD story. The XAG/USD price stands at $57.53 on the one-day chart and retains a negative near-term outlook because the spot level trades well below the 20-day exponential moving average (EMA) of $60.49. The breakdown below the aforementioned trend line suggests the current correction is heading toward a much deeper one. Moreover, the RSI (14) value, around 38, shows that selling pressure remains unchanged. On the upside, the first resistance area to watch is the 20-day EMA level of $60.49. For the price to reverse the current negative outlook, it needs to breach this technical level. Until the breakout happens, the price will continue to face the risk of further correction, as momentum readings remain in oversold territory.