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Natural gas forecast: bearish rectangle brews, will a breakout unfold?


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Natural gas prices continue stabilizing around the February low; a Bearish Rectangle chart pattern is brewing on the four-hour chart and keep a close eye for a potential breakout and key levels to watch.

 

BG_oil_pump_Brent_WTI_gas_flare_23423477Source: Bloomberg

 
Daniel Dubrovsky | Currency Analyst, DailyFX, San Francisco | Publication date: Monday 17 April 2023 

Momentum fading

Natural gas prices were once again left little changed this past week as the heating commodity struggled to find any momentum to either clear through critical support or push past resistance.

Looking at the Average True Range (ATR), the past 14-day period has been some of the quietest since August 2021. Overall, prices are struggling to find follow-through in the context of what has been a bearish play of a Head & Shoulders breakout since the end of last year.

Positive RSI divergence continues growing, indicating a rising risk of a reversal.

Natural gas weekly chart

 

image1natural-gas-price.pngSource: TradingView

Support reinforced

On the daily chart, we can get a better idea of how prices are stabilizing around support. The latter is the February low at 1.967, which was first retested in late March. Since then, prices have been unable to break lower. Moreover, positive RSI divergence is also growing on the daily chart.

The 50-day Simple Moving Average (SMA) is holding as key resistance, maintaining the broader downside bias. It is closing in as well. As such, it will be important to watch this line in the event of a turn higher in the week ahead. Such an outcome exposes the March high at 3.027.

On the other hand, breaking lower exposes the 23.6% Fibonacci retracement level at 1.696 towards the 2020 bottom at 1.44.

Natural gas daily chart

 

image2natural-gas-price.pngSource: TradingView

Is a bearish rectangle brewing?

Zooming in even closer on the four-hour timeframe for a near-term outlook this week, it seems that a Bearish Rectangle chart formation is brewing. The floor seems to be established around 1.998 with the ceiling around 2.238. A breakout lower could open the door to extending the downtrend that occurred during most of March.

Until a breakout in either direction occurs, the current technical bias seems neutral. Of note, the 100-period SMA has held as key resistance this past week, maintaining the downside bias. Pushing above this line could open the door to revisiting the ceiling of the rectangle.

Natural gas four-hour chart

 

image3natural-gas-price.pngSource: TradingView

This information has been prepared by DailyFX, the partner site of IG offering leading forex news and analysis. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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