Natural Gas in Trouble with Breakouts Underway

  • Natural Gas is lower this week and flirts with a break below $2.62.
  • US dollar trades up and down as headlines from Jackson Hole and BRICS affect markets.
  • The $2.53 technical support hangs in the balance.

The price of Natural Gas is breaking the bottom of an uptrending technical channel on the daily chart that began in late April. Although there is some risk of a substantial rebound in gas prices, the receding risks of Australian LNG terminal closures take away any upward pressure. In addition, the recent drop in the US Purchasing Managers’ Index (PMI) figures, which pointed to a contraction in activity, implies lower demand from that country.

Meanwhile, the dollar is facing one of the most volatile days of the year, as the BRICS meeting generated numerous headlines. The goal of the meeting is to form a new trading bloc among non-G10 countries and to study de-dollarization. In addition, this Thursday the Jackson Hole Symposium begins, and on Friday the president of the Federal Reserve (Fed), Jerome Powell, will speak. With Powell and other top central bankers ready to send a signal to the markets, a spike in volatility is a given.

At the time of writing these lines, Natural Gas is trading at $2,622 per MMBtu.

Natural Gas news and movements in the markets

  • Weekly natural gas storage figures from the Energy Information Agency (EIA) will be released at 14:30 GMT. A small decrease is expected, from 35B to 33B.
  • Israel approved the increase in natural gas exports to Egypt.
  • Gas storage levels in Europe continue to increase and stand at 91.62%, well above the target.
  • European gas futures sink 10% on the possible signing of a wage agreement by Australian workers.
  • Australian LNG workers open up in favor of Chevron’s renewed offer for higher wages and benefits after unions voted in favor of the new offer on the table.
  • Tropical Depression Franklin caused no structural damage in the Texas Bay area and gas production and supply will quickly return to normal levels.
  • The annual Jackson Hole symposium will be the focus of the week. The US Federal Reserve tends to signal a change in its monetary policy going forward.

Technical Analysis of Natural Gas: gives up support

Natural Gas is falling like a stone after briefly reaching $2.80 on the high side earlier this week. From a purely technical point of view, the uptrending channel is breaking up and a daily close outside of it would tilt the bottom line in a few weeks in favor of the bears. Once the lower trend line gives way, the risk of a sharp decline could be close at hand. With Europe well ahead of its gas storage target and no real bottlenecks reported, slowing economic activity around the world could send gas prices down towards $2.40.

To the upside, the $3 level continues to be in the spotlight once Natural Gas prices recover to $2.8. If prices recover, a close above $2,935, the August 15 high, will have to be looked for to confirm that demand is picking up again. Further upside towards $3 and $3,065 (August 9 high) would be targets or levels to watch.

To the downside, the trend channel is doing its job, as the 55-day SMA at $2.67 has been broken firmly. Should bearish pressure build, look for $2.54, which aligns with the 100-day SMA and is the last line of defense for Natural Gas prices to fall.

XNG/USD (Daily Chart)

XNG/USD (Daily Chart)

Source: Fx Street

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