1. The ECB
The most important event this week is the release of the Minutes from January’s European Central Bank meeting on Thursday. Remember, it was the release of the December minutes on Jan. 11 that sent the euro on a two-day run of 1.8% and paved the way for a rally of 4.8% to a high of 1.25765 on Jan. 25. In those minutes from December, we found out that the bank discussed changing its policy message in the near future. In the lead up to their January meeting, officials shot down speculation that they were ready to change their message. This was no surprise as the ECB is known to deliver a certain policy while testing a potential shift shown later in the release of their Minutes. Ultimately, we could get a signal that they are ready to shift policy at their March meeting. Furthermore, Eurozone CPI is due on Friday and this will be a critical read on the heels of these minutes.
2. The Fed
The Federal Reserve will play a pivotal role this week as minutes from the Jan. 31 meeting are released on Wednesday and there are at least nine speeches from members scheduled. Their next meeting is more than a month away on March 20-21 and new Fed Chair Jerome Powell will hold a press conference after. There is better than an 80% probability that they hike rates at this meeting. Last week’s CPI data was stable, but we wouldn’t call it impressive. Yes, the headline Core reads beat expectations at 1.8% vs 1.7% YoY and 0.3% vs 0.2% MoM. However, last month’s MoM read at 0.3% was revised down to 0.2% and we believe this has been understated. We look forward to speeches from known hike dissenter, Minneapolis Fed President Kashkari on Wednesday evening and Cleveland Fed President and potential Vice Chair Mester, a known hawk, on Friday.
The Commitment of Traders as of Feb. 13, shows that Managed Money took a net-short position in silver. Since bottoming through the end of 2015, Managed Money has only incurred a net-short position twice and upon both occasions that was the swing low in silver. The first was on July 11, 2017, where a 20% rally ensued. The second was Dec. 12, 2017, and a more modest 14% rally followed. A notable fact about each of these two rallies is that a major futures contract expiration preceded this event by about two weeks. While the bottom on the recent move might be in, we may not see a firm rally until the March contract falls off the board next week. Silver’s recent swing low on Feb. 9 was higher than that from Dec. 12, which was higher than that from July 11th. Its recent high of 17.705 failed against trendline resistance going back to April 2017. However, a new wave higher should take this out and send price action to the longer-term trend line from August 2013 and the post-Brexit high in July 2016. We are targeting 18.50-18.70 in silver and only a weekly close below its recent low of 16.13 will negate this. However, for those with a larger risk appetite, 15.70 is now the trend line from that July 2017 low.