Natural Gas falls over 4% as US Dollar rises after better-than-expected housing data

Natural Gas price peaks and rolls over after the release of upbeat macroeconomic housing data from the US, which supports the US Dollar, weighing on XNG/USD.
Gas pares earlier gains reached after Norwegian data showed lower-than-expected production in May, sparking supply fears.
Despite bullish fundamentals, the longer-term technical trend remains bearish as long as prices stay below $3.079 MMBtu.

Natural Gas price declines sharply after rolling over from the day's highs, on Tuesday, following the release of US housing data which unexpectedly beats expectations. The data increases demand for the US Dollar and weighs on Natural Gas which is predominantly priced in USD.

Earlier in the day Natural Gas rose to a new peak after data from the Norwegian Petroleum Directorate (NPD) showed a shortfall in supply in May. Norway is now the primary supplier of Natural Gas to Europe after sanctions hit imports from Russia, so prices are extra sensitive to related news flow out of the Scandinavian producer

XNG/USD is exchanging hands at $2.627 MMBtu, at the time of writing, during the US Session on Tuesday.

Natural Gas news and market movers

Natural Gas price drops sharply after the release of housing data from the US suggests a more positive outlook for the economy, supporting the US Dollar in the process and weighing on Gas prices which are mostly priced in USD.
The data showed an unexpected 21.7% rise in Housing Starts for the month of May, when a decline of 0.8% had been forecast.
Building Permits in May showed a 5.2% rise vs. the 5.0% fall forecast by economists. Since the indicator is considered a leading indicator for the economy it is seen by a many as a sign the US is not as vulnerable to falling into a recession as some economists had believed.
Natural Gas price rose earlier on Tuesday after production data from the Norwegian Petroleum Directorate (NPD) in May, came out 7.3% below forecasts.
274 Mega Standard Cubic Meters (MSm³) of Gas were produced by Norway in May. 21.9 MSm³ less than forecast, and less than the 339.8 produced in April and the 324.1 MSm³ in May 2022.
This further exacerbated supply concerns after the news of longer-than-expected outages at Norwegian Gas plants and rumors of an earlier-than-expected closure of the Groningen Gas field in the Netherlands.
Norwegian supply is now critical to the European continent after it replaced Russia as the main supplier in 2022, when Norwegian Gas accounted for 23% of imports compared to Russia’s 15%, according to a report by CNN.
The extended shutdown of plants in Norway could shave one billion cubic meters (bcm) of Gas off supply, and, “It only really takes 5 bcm less… to make the market a lot tighter,” a source told CNN.
“The European gas market — and by extension the global gas market — [is] certainly not out of the woods in terms of adequately matching supply with demand,” Tom Marzec-Manser, head of Gas analytics at ICIS, told CNN.
That said the position is not as precarious as in previous years: European storage facilities are now 73% full — a much higher level than the 56% averaged at the same time of the year over the past five years, according to data from Gas Infrastructure Europe (reported by CNN).
Asian rivalry for Europe’s limited supply is also likely to be less than in previous years, after Japan and South Korea recorded much higher stores and the Chinese economy continues to falter after months of lockdown.
Demand for air conditioning has risen due to hotter-than-expected weather in the Western hemisphere as the summer season begins.
The ongoing Atlantic hurricane season in the US could further increase demand in the US.
The People’s Bank of China’s (PBoC) decision to cut interest rates by 10 bps at its meeting on Tuesday morning, in order to help shore up growth in the economy, was interpreted by markets as too little.
Analysts had expected a bigger rate cut from the PBoC and global stocks fell on the news, with mixed implications for Natural Gas.
On the one hand, as a major global importer of Natural Gas, the cut should help increase demand, however, given it was considered too small the upside for the commodity may be limited.

Natural Gas Technical Analysis: Short-term uptrend within a longer-term bearish picture

Natural Gas price is in a long-term downtrend since turning lower at the $9.960 MMBtu peak achieved in August 2022. That said, bearish momentum has tapered off considerably since February 2023. This is evidenced by the bullish convergence of the Relative Strength Index (RSI) momentum indicator with price, beginning in May this year. Bullish convergence occurs when price makes new lows but RSI fails to copy. In actual fact the RSI started rising before price did, which was indicative of an underlying change in environment. Until price goes a bit higher, however, the overall trend remains down and there is still a possibility of a break lower.

Natural Gas would need to break above the last lower high of the long-term downtrend at $3.079 MMBtu to confirm a reversal in the broader downtrend.

As things stand, a break below the $2.110 MMBtu year-to-date lows would provide a signal for a continuation of the trend down to a target at $1.546 MMBtu. This target is the 61.8% Fibonacci extension of the height of the roughly sideways consolidation range that has been unfolding during 2023.

Natural Gas: Weekly Chart

On the daily chart it can be seen that price is rising up within its consolidation range. It has now broken above both the 50 and not the 100-day Simple Moving Average (SMA), which is a short-term bullish sign.

Natural Gas: Daily Chart

The 4-hour chart shows the pair in a short-term uptrend making successively higher highs and higher lows.

Natural Gas: 4-hour Chart

This falls in line with the bullish RSI convergence observed on the weekly chart.

Yet on the 4-hour chart, the RSI is now blinking ‘overbought’ (above 70), which is a signal for bulls not to add any new long positions.

In addition RSI is diverging bearishly with price, as it starts to fall whilst price continues making higher highs. This is a sign of underlying weakness in the short-term uptrend.

In the event that RSI exits the overbought zone and returns to neutral territory (below 70 and above 30), it would be indicative of a pullback in price after the recent strong gains.

US Dollar FAQs

What is the US Dollar?

The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022.
Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.

How do the decisions of the Federal Reserve impact the US Dollar?

The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.

What is Quantitative Easing and how does it influence the US Dollar?

In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.

What is Quantitative Tightening and how does it influence the US Dollar?

Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.

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