Natural Gas Forecast: Markets Looking for Potential Double Bottom

• Natural gas markets experienced a slight decline during Wednesday's trading session, with the possibility of threatening the $2.00 level.
• Despite this, buyers have been entering the market just above this point, particularly during the previous session.
• This suggests that we might be witnessing the formation of a double bottom, which makes sense given the large, round, psychologically significant number.

This does not imply that the natural gas market will suddenly turn bullish; rather, it indicates that a bounce toward the $3.00 level is possible. This level represents the top of the overall consolidation area and coincides with the 50-Day EMA. Any rally at this stage should be viewed as a countertrend, with plenty of sellers likely to capitalize on the first signs of exhaustion.

The Market is Facing Mixed Signals

Fundamentally, it is important to remember that natural gas markets are typically weak during this time of year, as the northern hemisphere begins to warm up. Heating demand, a significant driver of natural gas consumption, decreases with rising temperatures. Moreover, industrial demand plays a crucial role in natural gas usage, with global slowdowns impacting this sector. Natural gas is not only used for electricity production but also in various other industrial applications.

Europe managed to avoid a harsh winter, as adequate natural gas reserves were maintained following the Russian invasion of Ukraine. This contributed to market stability and was a primary reason for the drastic sell-off. Additionally, the United States has expressed a willingness to support the European Union with LNG exports. Consequently, even if the market rallies from its current position, it is unlikely to reach the $10 level seen last year. Rallies should be treated with caution.

TLDR; the natural gas market is facing mixed signals, with a potential double bottom forming while broader market conditions remain uncertain. Traders should remain cautious of rallies at this point due to the fact that there is so much negativity out there, and quite frankly there are so many different things out there that could cause issues. The FOMC during the day can also cause the US dollar to jump around, and although it would not be directly correlated to the natural gas market, a strengthening US dollar will put some negative pressure on the market due to the fact that it will take less of those dollars to buy natural gas, and of course vice versa.