Natural Gas price surges on weaker US Dollar post-ECB, increased demand outlook

• Natural Gas surges, piercing through the 100-day SMA after ECB raises all three rates by 25 bps and revises up inflation forecasts.
• Gas market demand bubble and supply headwinds further underpin the commodity. 
• Technically speaking, Natural Gas price is mounting a recovery despite remaining in a long-term downtrend. 

Natural Gas price continues its run of recent gains on Thursday supported by a weaker US Dollar following the European Central Bank (ECB) interest rate decision, at which the ECB raised interest rates by 0.25%, as expected, and revised up its inflation forecasts, thus paving the way for hikes in the future. This strengthened the Euro and led to a steep decline in the US Dollar Index (DXY).  

XNG/USD is further boosted by forecasts of hotter summer weather which is likely to stoke demand for Natural Gas in cooling systems. Increased demand from Asia, outages in Norwegian fields and disruptions to Russian pipeline gas flows are further factors cited for the recovery. 

At the time of writing, Natural Gas is trading 2.75% higher on the day at $2.467 MMBtu.  

Natural Gas news and market movers 

• Natural Gas pops higher following the ECB meeting and decision to increase all three of its key interest rates by 0.25%, to 4.00%, 4.25% and 3.50% for the main refinancing, marginal lending and deposit facilities respectively. 
• More importantly the ECB revised up its forecasts for core inflation in 2023-4. 
• This will probably lead to higher interest rates in the future and contrasts with the US Federal Reserve’s relatively less hawkish outlook.  
• A key phrase in the ECB’s monetary policy statement was, “The Governing Council’s future decisions will ensure that the key ECB interest rates will be brought to levels sufficiently restrictive to achieve a timely return of inflation to the 2% medium-term target and will be kept at those levels for as long as necessary."
• That said, the ECB also revised down growth estimates for 2023-4 – a dovish sign. 
• Natural Gas price is further underpinned by a mixture of increased Asian demand, forecasts of hotter weather, Russian pipeline disruptions and Norwegian outages. 
• Traders now await the press conference with ECB President Christine Lagarde for further clues about the ECB’s outlook and the key EIA Natural Gas inventory data out at 14:30 GMT.    

Natural Gas Technical Analysis: Recovering within a longer-term downtrend

Natural Gas price is in a long-term downtrend after turning lower from its peak of $9.960 MMBtu achieved in August 2022. It continues to make lower lows, though bearish momentum has tapered off considerably since February 2023, as evidenced by the bullish convergence of the Relative Strength Index (RSI) momentum indicator since May. A bullish convergence occurs when price makes new lows but RSI fails to. It can indicate a propensity for price to rebound. 

Nevertheless, unless Natural Gas can break above the last lower high of the long-term downtrend at $3.079 MMBtu, the odds continue to favor the bear trend, and shorts over longs. 

A break below the $2.110 MMBtu year-to-date lows would solidify the bearish outlook and suggest a continuation down to a target at $1.546 MMBtu, the 61.8% Fibonacci extension of the height of the roughly sideways consolidation range that has unfolded during 2023. 

Natural Gas: Weekly Chart

Scoping into the daily chart, it can be seen that price has broken above the 50-day Simple Moving Average (SMA) but has been rebuffed by the 100-day SMA during the early session on Thursday. The 100-day SMA is likely to present a considerable hurdle for bulls and would require a decisive break to overcome. 

Decisive bullish breaks are characterized by a break through a level by a longer-than-average green daily candle, which closes near to its high or three green daily candles in a row. 

Natural Gas: Daily Chart

Looking at the 4-hour chart, the current decisive break happening above the May 31 high of $2.433 MMBtu, is a bullish sign that suggests a continuation higher is likely in the short term, assuming the bullish break holds, and the current 4-hour period closes near to its high. 

Natural Gas: 4-hour Chart

This falls in line with the bullish RSI convergence observed on the weekly chart. On the 4-hour chart, meanwhile, the RSI is tracking price higher, peaking in the short term with price. This keeps the torch burning for bulls and indicates the possibility of higher prices to come, particularly in the near term.