LupaCapital

XAG USD - May update [Full breakdown]

Long
FOREXCOM:XAGUSD   Silver / U.S. Dollar
Hello analysts and traders,

Please see the previous chart below for Silver .

A Note before reading - this is a forecast analysis - based upon our trading strategy. This is tagged long, due to purchasing further increments upon imbalances.
Please do not take this as face value and conduct the relevant investment strategy to successfully trade the probabilities.

Master Key for zones
Blue = Monthly
Purple = weekly
Red = 4 Days
Yellow = 16 Hours
Orange = Daily
Dark Green = 8 Hour
Grey = 4hour
Pink = 1 hour


See the original idea here:

Monthly
Here are the clear paths for silver , to provide clear indications of where price will drive from and to.
The inefficiencies are clearly marked and have previously reacted at these points in the past.

The buy zone -
price had tested the low of 2009 - at a testing of the imbalance at $11.6XX, which falls inline with the three month chart view*
With the initial first time imbalance providing a clear buying path - the opportunity here was to buy upon confirmation of the low rejection, by looking to the weekly for a confirm.
The price was showing a high probability of inefficiency, allowing the price to pivot off the bottom of the wick.

Three month view*
The zones applied here are crucial to understand the monthly and weekly zones placed on top.
Yes, the zone on the top is a huge wick - however, this had provided price to grow into the pivotal and vital zone where price has provisions to show an opportunity here for the zone to become a great opportunity to obtain a future outlook breaking said zone. What price can indicate at this moment - is a large gap for price to freely test.
See the follow up chart**
**
Weekly
the weekly imbalances have been marked - where;
1. the inefficient pricing imbalance from the low point of 2020 - which marked the test of the monthly zone, price had rejected and created a new formulated zone above, where price had created a great opportunity and highly probable long position . the relevance of this candle marked, is where price has reacted - whereby sellers are closing out positions as the price is creating long orders.

The mid zone opportunity was based on the 2014 candle formation - where, price had begun to sell off upon a retest of the sell off from 2013 monthly imbalance.
This acted as a swap zone - but created a testing of the structure for sell imbalances to look to add positions.

The top imbalance is hiding within the monthly zone. Where price had rejected the monthly zone but needed to be retested.
Price created a weekly low which allows the price to create the low. From here, allow a retest - which forms a formation lower high.

Historical Fractal
Here are two weekly fractal formations where price had created an imbalance opportunity.
Price made a low which reaches the key level desired imbalance.

Four day
Here is the current four day imbalances applied to the chart - where price currently does not have an imbalance as yet - some would consider the $29.9 zone an imbalance but looking left - the next zone looks to be a high probability at $35. XX

The current state of the market - will see price 'move' where the market determines the range - which is well established.
Price during a bear market, will provide a high probability to keep price moving up to $35 range and beyond, but keep in mind the caveat of price falling first to shake out smaller buyers.

16 Hour time frame
Here is the 16 hour time frame, where price has established the area of the imbalance at the top of the range.
Price has reacted multiple times in this zone. Now price will be looking to test this area again for a third time. Once it has now - the imbalance will become a new additional zone to keep the long positions.


Cross over assets
Here is XAU XAG with the US10years as a cross over asset.
The Yields have always been entrusted as a good indication from a macro-economic prospective.
Using the weekly chart - price has established lows - which equate to a 'bottom out'. Price created a great monthly imbalance on the monthly chart*
The low zone $45 - 30 - price moved to create a new high which is -0.618 as intended using the Fibonacci extension tool.

Using Fibonacci - the 61.8% shows that price is at a strong level to react and pivot to push towards the all time high - but extend further.
**

Adding the Vix ( volatility index) on the weekly timeframe . Price has has shown the yield correlation between the VIX and Yields.

Using the XAG chart vs the gold and silver sector index - this is for correlation purposes. .

XAU VS DXY
DXY is showing a weakening further of the US dollar , but has touched upon a critical imbalance as previously analysed, comparing the imbalance upon XAU in correlation to the SPX , XAU has created an imbalance between $1670- 1730 on the monthly rejection. This imbalance here can be retested as the SPX moves towards completing the Fibonacci extension sequence and forms its new imbalance upon a monthly time frame.

DXY is critical here as it forms a strong outlook in terms of the cross correlation of other assets (shown above) to give an indication of taking the risk in account that the identified imbalance is an area of interest to monitor moves for SPX and XAU alike in respective of awaiting the next action.

Applying Fibonacci to prove the price extension target lines with the imbalance on the four day, and weekly.

Inflation - simplified:
Types of inflation
Cost-push inflation – when a rise in prices is caused by a rise in the cost of production, such as higher oil prices
Demand-pull inflation – when a rise in prices is caused by rising aggregate demand and firms pushing up prices due to the shortage of goods

The most likely scenario will be a cost push inflation scenario
Rising wages
If trades unions can present a united front then they can bargain for higher wages. Rising wages are a key cause of cost-push inflation because wages are the most significant cost for many firms. (higher wages may also contribute to rising demand)

Import prices
Using the UK as an example, where 1/3rd of all goods are imported in the UK. If there is a devaluation, then import prices will become more expensive leading to an increase in inflation . A devaluation/depreciation means the Pound is worth less to the EUR GBP, GBP USD, GBP AUD etc. Therefore the payment is more to buy the same imported goods as before, where these prices are pushed on to the consumer to keep profits, the same.

Where are we with the inflation outlook?
Currently it is uncertain, but applying using the charts above where the VIX has been supressed but should not be ignored — plus the economy has never reopened from a pandemic before — and because the way the government approaches economic policy has shifted over the past year - where the FED (US) have adopted an approach of printing and keeping rates at very low rates to obtain and justify continuing a huge bond-buying program that the Fed began at the start of the pandemic downturn. Those policies make money cheap to borrow, ultimately bolstering demand for goods and services and helping prices to rise.

Keep in mind, the federal government has drastically loosened its purse strings, spending trillions of dollars to pull the economy out of the pandemic recession. Both the fiscal and the monetary response are meant to keep households economically whole through a challenging period, so there was also a risk to having less-ambitious policies.

Watch the chart to see price move in our favour to the upside or sink?

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