Silver pulls back below $38.50 as bullish momentum fades on firm US Dollar, CPI data

• Silver pulls back below $38.50 as bullish momentum fades near YTD high.
• US Dollar strength weighs on Silver as CPI data reflects persistent inflation, lifting yields.
• Robust Industrial data from China and Europe limits the downside for XAG/USD.

The price of Silver is attempting to recover from Monday's slump as traders digest fresh economic data from China, the Eurozone, and the United States.

After reaching a new year-to-date high of $39.13 in the previous session, profit-taking at elevated levels pushed XAG/USD back toward the key psychological level of $38.00.

At the time of writing, Silver continues to trade within an ascending channel, with price action sensitive to shifts in risk sentiment and the near-term direction of the US Dollar.

US Dollar strength weighs on Silver as CPI data support yields

The June Consumer Price Index (CPI) showed that headline CPI rose 2.7% (YoY), in line with expectations, while core CPI came in at 2.9%, slightly lower than the 3% consensus but still well above the Fed's 2% target.

The lack of faster disinflation has tempered expectations for a September rate cut, with Fed funds futures now pricing in a 59% probability, slightly lower than prior to the release.

The market reaction reflects a repricing of interest rate expectations, with Treasury yields firming and the US Dollar advancing. Despite encouraging industrial figures from China and the Eurozone, the US economy remains comparatively resilient, making the Greenback more attractive relative to other major currencies.

Robust Industrial data from China and Europe limits the downside for Silver

During the Asian session, China's Q2 Gross Domestic Product (GDP) came in at 5.2% (YoY), slightly above expectations of 5.1% but down from 5.4% in the same quarter last year. On a quarterly basis, GDP grew 1.1%, beating the 0.9% forecast. However, more importantly for Silver, Industrial Production surged by 6.8% annually, up from 5.8%, signaling robust factory activity.

Since Silver is widely used in electronics, solar panels, and industrial manufacturing, it is highly sensitive to global production trends.

Adding to the momentum, Eurozone industrial production also surprised to the upside in May. Output rose 1.7% (MoM) versus a 0.9% estimate, while annual production jumped 3.7% (vs. 2.9% forecast), marking a sharp recovery from April's contraction. This broad improvement in global industrial performance strengthens the case for continued physical demand for Silver across both Europe and Asia.

Silver pulls back below $38.50 as bullish momentum fades near YTD high

After rising to a fresh year-to-date high of $39.13 on Monday, Silver faced selling pressure that capped the rally. By Tuesday, XAG/USD had retreated toward the $38.00 psychological level, though price action remains confined within a rising channel on the 4-hour chart.

Key support is seen at the psychological level of $38.00 and the 50-period Simple Moving Average (SMA) at $37.23, while resistance remains at the YTD high of $39.13.

Silver 4-hour chart

The Relative Strength Index (RSI) has eased to 58, reflecting a loss of momentum without signaling oversold conditions. Unless bulls reclaim control above $38.50, Silver risks slipping toward $36.50, where the next significant support zone is located.