XAG/USD traded higher on Friday, after it hit support slightly above 15.50, near the lower bound of a pennant formation that’s been containing the price action since the 3rd of January. Although the metal continues to trade well above the upside support line drawn from the low of the 14th of November, as long as it stays within the pennant, we will maintain a neutral stance with regards to the short-term outlook.
Even though a break above 15.77 may be enough to signal the upside exit out of the pattern, and thereby the continuation of the prevailing uptrend, we prefer to wait for a clear move above 15.85, the high of the 4th of January, before we get confident on more upside extensions. Such a break would confirm a forthcoming higher high on the 4-hour chart and could initially open the path for the 16.00 zone, marked by the highs of the 12th and 13th of July. Another move above 16.00 could set the stage for the high of the 9th of that month, at around 16.20.
Taking a look at our short-term momentum studies, we see that the RSI rebounded back above its 50 line, but it slowed down thereafter, and now points sideways. The MACD lies fractionally above zero, slightly below its trigger, and points east as well. These indicators suggest lack of any directional momentum and corroborate our view to stay flat for now, at least until the price exits the pennant.
In order to consider the downside exit out of the formation, we would like to see a break below 15.50, a support marked by the low of the 8th of January. Such a dip may initially pave the way towards the 15.32 obstacle, the break of which may allow the white metal to slide towards the 15.17 support, defined by the inside swing high of the 26th of December. That said, even if this is the case, the price would still be trading above the aforementioned upside support line, and thus, we would treat such a slide as a corrective phase.
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