On 4 December, while analysing the XNG/USD chart, we highlighted the rally in natural gas prices towards a three-year high and noted that the price had entered a resistance zone formed by:
→ the upper boundary of a broad descending channel (shown in red);
→ the $4.800/MMBtu level, near which a peak was formed in March;
→ the psychological $5.000/MMBtu mark.
As indicated by the arrow:
→ this resistance cluster proved effective, and after an attempt to break above the $5.000 psychological level, the uptrend reached its climax;
→ following the appearance of a bearish gap on 8 December, selling pressure took control, leading to a break below the orange ascending trend line and a decline in US natural gas prices.
From a fundamental perspective, the pullback has been driven by several factors:
→ Seasonality. Weather forecasts for the US holiday period point to above-average temperatures, reducing demand for heating and power generation.
→ Rising production. According to Trading Economics, natural gas output in the continental United States reached 109.7 billion cubic feet per day in December, maintaining the record levels seen in November. In addition, EIA data show that gas inventories remain 0.9% above the current five-year average.
It is worth noting that today natural gas prices are trading:
→ near a support zone created by the bullish gap formed in the second half of October;
→ close to the median of the aforementioned descending channel, an area where supply and demand often come back into balance.
Taking this into account, it is reasonable to assume that:
→ after a sharp drop of around 30% from the early-December peak, sellers may look to lock in profits ahead of the holidays;
→ the market could enter a consolidation phase.
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