U.S. INFLATION EASES TO 2.3%, LOWEST SINCE FEBRUARY 2021 — SILVER PRICE REACTION TO CPI

At 4:30 PM GMT+4 on Tuesday, U.S. annual inflation data, Consumer Price Index (CPI) was released by the bureau of labor statistics. The data revealing a softer-than-expected annual inflation rate of 2.3%, down from March 2.4% and marking the lowest inflation reading since February 2021.
The softer reading likely indicates that inflationary pressures in the economy may be easing more decisively, despite the recent challenges posed by the trade war.
Gasoline prices declined more sharply, while inflation also eased for food and transportation. On a monthly basis, the Consumer Price Index (CPI) rose by 0.2%, bouncing back from a 0.1% drop in March but falling short of the projected 0.3%.
The cooler print reinforces expectations that the Federal Reserve could adopt a more dovish stance in the coming months, especially as policymakers continue to balance the fight against inflation with the need to support growth. 
Markets reacted positively to the data. Hence traders increasingly priced in the possibility of interest rate cuts later this year. The U.S. dollar weakened slightly, reflecting reduced demand for the currency amid a shifting rate outlook.

HOW DID SILVER PRICE REACT TO CPI’S SOFT READING?

Markets across board reacted differently to the data reading. Silver prices experienced a notable increase of approximately 0.95%, reaching around $33.22 per ounce. While the dollar index (DXY) on the other hand declined by approximately 0.83%
The surge in silver prices was primarily driven by the release of softer-than-expected U.S. Consumer Price Index (CPI) data, which suggested a moderation in inflation.
The lower inflation figures increased expectations of interest rate cuts by the Federal Reserve by 8.2% according to FedWatch, leading to a weaker U.S. dollar. These conditions enhanced the appeal of non-yielding assets like silver trading, contributing to its price rise. Analysts anticipate that if inflation continues to moderate and the Federal Reserve adopts a more dovish stance, silver could test resistance levels around $35 per ounce in the near term. However, potential pullbacks could occur if economic indicators shift or if the Fed signals a change in monetary policy direction.
The next policy decision is scheduled for June 18th, with attention firmly centered on economic indicators to guide the policy outlook.
Overall, the softer CPI data bolstered silver's appeal as both an industrial metal and a hedge against inflation, contributing to its recent price gains. However, prices have been consolidating between 33 and 31.68 since mid-April, while waiting for the next catalyst.

TECHNICAL VIEW OF SILVER AND POTENTIAL PRICE LEVELS TO WATCH OUT

From technical perspective, silver has been consolidating between 33.24 and 31.91 since mid-April, the metal witnessed a notable surge in the wake of April’s CPI but faced resistance around 33.24 and gave up some gains made previously. As at the time of writing, the metal’s price is stable around 32.83, While waiting for the next driver, a bullish momentum could potentially reach out for 33.24, 33.53 and 34.17. On the flipside, if the bears take the center stage, then 31.84 and 30.94 should be watched out for, according to analysts. Breakout of these levels are not ruled out.
 

Fig. 1 XAGUSD 2H, Tradingview.

UPCOMING CATALYST:

In the remaining days of the week, there are few other releases that could likely cause volatility in the markets.
On Thursday the 15th, PPI and retail sales is expected to be on the wire, followed by President Trump’s speech later in the day. Then on Friday, attention would shift to consumer sentiment and inflation expectations. Basically, analysts will be watching the Producer Price Index (PPI) and retail sales figures, for further confirmation of a disinflationary trend.
These data points and events has the tendency to cause a shift in sentiment and hence presents risk and rewards for traders.