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Natural Gas threatens a bearish break, awaiting US CPI

  • Natural Gas fell again on Thursday, testing vital support before a sharp decline.
  • Traders see demand in Europe picking up again, while the release of US CPI for June keeps US gas prices in check.
  • The US Dollar Index weakens and trades below 105.00 due to concerns about President Biden’s permanence in the race.

Natural Gas (XNG/USD) price is down on Thursday for the third consecutive day this week, with pressure mounting on critical support ahead of a potential sharp decline. The release of the US Consumer Price Index (CPI) later in the day keeps US Gas prices in check, where a further disinflationary print could mean a near certainty that a Federal Reserve (Fed) interest rate cut is coming in September. Lower interest rates would boost demand, with a positive outlook for the coming quarters in terms of Natural Gas demand.

Meanwhile, the US Dollar Index (DXY), which tracks the value of the Greenback against six major currencies, is down ahead of the release of the US CPI, as senior public figures such as Nancy Pelosi and Georges Clooney are calling on President Joe Biden to make way for a better candidate on the presidential ticket, weighing on the US Dollar. Markets are holding their breath until the CPI data is released at 12:30 GMT because it is vital. If the CPI data turns out to be a surprise with higher than expected inflation, any chance of a September rate cut would disappear, with markets pricing in a push into December or even just early 2025 for the Fed to start cutting borrowing costs.

Natural Gas is trading at $2.34 per MMBtu at the time of writing.

Natural Gas Market News and Drivers: CPI Footprint

  • Substantial market volatility is expected on Thursday around 12:30 GMT when the US Consumer Price Index numbers for June are released, including in gas prices.
  • Norway’s Karsto plant faces maintenance until July 13 after an earlier extension, grid operator Gassco AS said, Bloomberg reports.
  • Woodside Energy in Australia has signed a deal with Taiwan for long-term deliveries, Reuters reports.
  • The European gas premium is widening between peripheral countries in the south and continental Europe. High temperatures in Spain, Portugal and Italy are causing short-term shortages with high demand on a steady supply, Bloomberg reports.

Natural Gas Technical Analysis: CPI Catalyst in Motion

Natural Gas price is stabilising near the crucial support area at $2.30 ahead of the US CPI release for June. It is becoming evident that commodity traders are looking for an external catalyst to move price action in either direction. If the CPI release is binary, expect to see a substantial move in either direction in the price of Natural Gas in the wake of the CPI result confirming or denying a rate cut in September.

The 200-day SMA is the first force to watch on the upside near $2.51, closely followed by the 55-day SMA at $2.63. Once above, the key level near $3.08 (March 6, 2023 high) remains a key resistance after its false breakout last week.

On the downside, the support level, which could mean some buying opportunities, is $2.30, the 100-day SMA that aligns with the ascending trend line since mid-February. In case that level fails to hold as support, look for the key level near $2.13, which has acted as a ceiling and floor in the past.
Natural Gas: Daily Chart

Natural Gas: Daily Chart

Natural Gas FAQs

Supply and demand dynamics are a key factor influencing natural gas prices, which are influenced by global economic growth, industrial activity, population growth, production levels and inventories. Climate influences natural gas prices because more gas is used during cold winters and hot summers for heating and cooling. Competition from other energy sources influences prices as consumers may opt for cheaper sources. Geopolitical events, such as the war in Ukraine, also play a role. Government policies related to extraction, transportation and environmental issues also influence prices.

The main economic release that influences natural gas prices is the weekly inventory bulletin from the Energy Information Administration (EIA), a US government agency that produces data on the gas market in the United States. The EIA Gas Bulletin usually comes out on Thursday at 14:30 GMT, one day after the EIA publishes its weekly Oil Bulletin. Economic data from major natural gas consumers can influence supply and demand, including China, Germany and Japan. Natural gas is primarily priced and traded in US dollars, so economic releases that affect the US dollar are also factors.

The US dollar is the world’s reserve currency and most commodities, including natural gas, are quoted and traded on international markets in US dollars. Therefore, the value of the dollar influences the price of natural gas, since if the dollar strengthens, fewer dollars are needed to buy the same volume of gas (the price falls), and vice versa if the dollar strengthens.

Source: Fx Street

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