Natural gas futures are attempting to recover from early session weakness on Thursday. At this time, the price action is being driven by technical factors as traders await the release of today’s U.S. Energy Information Administration’s weekly inventories report at 1430 GMT.
At 0730 GMT, October natural gas futures are trading $2.925, unchanged. Earlier in the session, the market traded as low as $2.902.
Technical traders are reacting to a potential support zone where they see value. The short-term range is $2.799 to $3.042. Its 50% to 61.8% retracement and value zone is $2.921 to $2.892. The market is currently testing this zone.
Trader reaction to this zone will determine the near-term direction of the market. If today’s EIA report is bullish then prices should rally through $2.921. If today’s EIA report is bearish then prices could drop below $2.892.
The market has reached a critical support area on the charts. It’s now up to the storage report to determine if it will rally, or continue its price slide.
Forecast
Traders should keep in mind that the storage data is stale data because it’s a week old. The weather forecast looks forward. While the EIA data may help to establish support, it’s the weather forecast that will actually be the catalyst that fuels a new rally, or leads to a continuation of the break.
Today’s EIA report is expected to show a build of about 46 billion cubic feet during the week-ending August 11. The number on the low end of the estimates is 41. The high end number is 51.
According to natgasweather.com, the weather forecast up to August 23 shows that “hot high pressure will quickly return late this weekend through early next with much of the country very warm to hot to drive stronger than normal demand. Overall, national natural gas demand will be increasing to high.”
Given the current weather pattern, look for a rally over $2.921 if the EIA report comes in on the high end of the estimate.
Prices could weaken under $2.892 if the EIA report comes in on the low end of the estimate.
At this time, the chart pattern suggests the way of least resistance is up. So even if the news is bearish, I’m expecting losses to be limited.
This article was originally posted on FX Empire