Natural Gas Price Forecast: XNG/USD pauses pullback from two-month high near $2.50 on cautious optimism

• Natural Gas price remains sidelined after reversing from the highest levels in two months.
• Market sentiment improves as US policymakers raise hopes of avoiding default.
• Upbeat US data, hawkish Fed speak and fears of more XNG/USD output weigh on the commodity price.
• Risk catalysts are the key ahead of weekly EIA Natural Gas Storage Change.

Natural Gas Price (XNG/USD) treads water around $2.50 amid Wednesday’s sluggish Asian session, after reversing from the highest levels since mid-March, as well as snapping a three-day uptrend, the previous day.

The energy instrument previously dropped amid the broad US Dollar rebound on sour sentiment and upbeat US data, not to forget the hawkish Federal Reserve (Fed) comments. However, receding fears of the US default and a light calendar allow the XNG/USD to pause the previous reversal from the multi-day top.

US Dollar Index (DXY) retreats to 102.57 following Tuesday’s 0.18% intraday gain to reverse the week-start losses.

That said, US Retail Sales improved to 0.4% MoM for April, from -0.7% prior (revised) versus 0.7% expected. More importantly, Retail Sales Control Group for the said month crossed market forecasts of 0.0% and -0.4% prior with 0.7% actual figure whereas Retail Sales ex Autos matches 0.4% MoM estimations for April¸ surpassing the -0.5% prior. Further, the US Industrial Production MoM rose to 0.5% for April versus expectations of printing a 0.0% figure.

While justifying the data, as well as defending the rate hike bias, Federal Reserve Bank of Chicago President Austan Goolsbee and Atlanta Fed President Raphael Bostic defended the US central bank’s hawkish moves by citing inflation woes as they spoke at a conference hosted by the Atlanta Fed on late Tuesday.

Talking about the risks, US President Joe Biden and House Speaker Kevin McCarthy’s meeting renewed the market’s optimism that the US policymakers will be able to avoid the “catastrophic” default. Following the less-than one-hour-long meeting, congressional leaders, said, "It is possible to get a deal by the end of the week."  The optimism triggered a fall in the one-year US Credit Default Swap (CDS) spreads while also helping the S&P500 Futures to print mild gains and defy Wall Street’s downbeat performance.

It’s worth noting that the previous day’s downbeat China data renews fears of less energy demand from the world’s biggest commodity user. Adding to the Natural Gas market’s pessimism are concerns about higher supplies from Russia and the renewal of European gas flows.

Looking ahead, a light calendar may allow the XNG/USD to pare recent losses ahead of the weekly release of the US Energy Information Administration’s (EIA) Natural Gas Storage Change data, prior 78B. Apart from that, the updates surrounding the central banks and the US default will be more impactful and shouldn’t be missed for clear direction.

Technical analysis

Despite the failure to provide a daily closing beyond a two-month-old ascending resistance line, around $2.60 at the latest, the Natural Gas Price remains on the bull’s radar unless providing a daily close below a convergence of the 21-DMA and 50-DMA, near $2.37 at the latest.