Silver Price Forecast: XAG/USD extends recovery to $27 as weak US data reinforces Fed rate cut bets

• Silver price moves higher to $27.20 as weak US data falters US economic strength.
• Traders have priced in the Fed reducing interest rates from September.
• Lower bond yields improve the Silver's appeal.

Silver price (XAG/USD) stretches recovery to $27.20 in Monday's European session. The white metal capitalizes on weak United States labor market and Services PMI that raises concerns over the economic strength and prompt expectations for Federal Reserve (Fed) cutting interest rates from the September meeting.

The US Nonfarm Payrolls (NFP) report showed that fewer jobs were added in April than the consensus and the prior reading. The Unemployment Rate rose to 3.9%. Also, wage growth softened sharply. Poor US NFP report indicated deepening consequences of higher interest rates by the Fed. Also, weak Services PMI strengthened expectations for Fed rate cuts in September.

The Services PMI, which represents the service sector that accounts for two-thirds of the economy falls below the 50.0 threshold to 49.4, recorded as the lowest reading since December 2022.

Despite broader data was weak, traders were reluctant to bring forward expectations for Fed rate cuts as the ISM Price Paid subindex rose sharply to 59.4 from 53.4 in March. This is a leading indicator of the US inflation outlook as it exhibits prices paid for inputs businesses.

Weak US data has weighed on the US Dollar Index (DXY) as it struggles for a firm-footing above 105.00. 10-year US Treasury yields fell sharply to 4.47%. A decline in yields on interest-bearing assets uplift demand for non-yielding assets, such as Silver, as the opportunity cost of holding an investment in them diminishes.

Silver technical analysis

Silver price recovers after discovering strong buying interest near the horizontal support plotted from 14 April 2023 high around $26.09 on a daily timeframe. The above-mentioned support was earlier a major resistance for the Silver price bulls. The uncertainty over Silver's near-term outlook still remains as it has yet not settled above the 20-period Exponential Moving Average (EMA), which trades around $27.20.

The 14-period Relative Strength Index (RSI) slips into the 40.00-60.00, suggesting that the bullish momentum has faded. However, the long-term outlook is still stable.

Silver daily chart