Natural Gas Forecast: Prices Rise as US Heat Wave Drives Demand Narrative

Natural gas prices on track to rise near 10% so far this June Record-breaking temps in western US is driving energy demand Technical outlook significantly improved with the latest rally

Natural gas prices are nearly 10% higher for June as a record-breaking heatwave scorches the western United States. The unusually high temperatures extend from California out to the Great Plains, covering thousands of miles across cities and rural areas alike. Over a dozen locations saw new records set last week, according to the National Oceanic and Atmospheric Administration’s (NOAA) Alex Lamers, a meteorologist with the agency’s Weather Prediction Center.

The extreme weather has people cranking up their air conditioning units, placing heavy demand on electric grids. In fact, soaring temperatures are placing such enormous demand on the grid that a hydroelectric power plant in California may suspend operations for the first time in over 50 years. State officials estimate the power generator has two to three months left to operate at the current pace, highlighting the strain caused by the heatwave.

NATURAL GAS TECHNICAL BREAKDOWN

Natural gas appears to have successfully recaptured a September 2020 trendline, with the latest swing low confirming the level as support. The 20-day Simple Moving Average (SMA) appears to have also offered a degree of confluent support. The heating gas’s technical posture looks primed to provide prices a chance to tackle the 2020 high at 3.396.

However, the recent swing high at 3.369 or the former 2021 high at 3.316 may pose as resistance before testing that area. That said, the latest rally broke through negative divergences in both the RSI and MACD oscillators, negating possible bearish signals.

Alternatively, if prices do drop, the 20- and 50-day SMAs may provide downside support

NATURAL GAS DAILY CHART

Dow Jones May Lead Nikkei 225 Higher as Tapering Fears Ease

Dow Jones, S&P 500 and Nasdaq 100 indexes closed +0.20%, +0.51% and +0.94% respectively Investor confidence seemed to be revitalized by Powell’s patient stance on rate hikes

Asia-Pacific markets are positioned to trade slightly higher. Markit US manufacturing PMI readings are in focus

The Dow Jones Industrial Average rebounded for a second day after Fed Chair Jerome Powellreiterated his dovish assessment on monetary policy, soothing fears about tapering. He sees inflationary pressures to be “transitory”, and the Fed would be “patient” in waiting to lift borrowing costs during a congressional hearing on Tuesday. Wall Street stocks rebounded for a second day after hawkish-biased views from St. Louis Fed President James Bullard catalyzed a drastic selloff on Friday.

The recent market volatility reflects that investors remain jittery about the Fed’s tightening shift, as the economic recovery gathered pace and inflation readings surpassed expectations. This Friday’s Core US PCE readings will be closely eyed by traders for clues about rising price levels and the ramifications for the Fed’s policy guidance.

Meanwhile, demand for the Fed’s overnight reverse repo (ON RRP) facility hit an all-time high of $791.6 billion on June 22nd (chart below), reflecting swelling liquidity at financial institutions. This suggests that the markets may have sufficient liquidity to warrant a gradual scaling back of the Fed’s monthly asset purchases. A reverse-repo happens when a central bank sells securities and raises cash from the markets in order to provide stability in lending flows. It usually happens when there is too much liquidity (cash) and demand for interest-bearing securities rises.

The Dow Jones index is attempting to return to the “Ascending Channel” after briefly breaching below it.

An immediate support level can be found at 33,320 – the 161.8% Fibonacci extension, whereas a key resistance can be found at 34,920 – the 200% Fibonacci extension. Bearish MACD divergence suggests that prices may be vulnerable to a technical correction as bullish momentum fades.

Dow Jones Index – Daily Chart

Australian Dollar Forecast: Flash PMIs Ease With RBA Talks in Focus

Australia flash PMI Figures drop from May but remain positive RBA’s Assistant Governor Luci Ellis to speak on monetary policy AUD/USD battles 200-day SMA after rebounding from sharp drop

June’s flash PMI data showed the Australian economy continued to expand across the services and manufacturing sectors, according to IHS Markit. The upbeat prints mark the tenth straight month of expansion, although the prints were not as strong as the prior months. The manufacturing index fell to 58.4 from 60.4, while the services index fell to 56.0 from 58.0.

Labor market conditions remain positive despite the JobKeeper wage subsidy program ending earlier this year, in line with the Reserve Bank of Australia’s outlook on employment. The indexe’s inflation gauge eased slightly after months of building prices, likely due to the weakening seen across the commodities market. The Australian Dollar’s upward momentum extending from overnight was unchanged on the figures crossing the wires.

AUD/USD TECHNICAL OUTLOOK:

The Australian Dollar is moving into its third daily gain following last week’s sharp drop versus the US Dollar. However, the currency pair faces a major test, with the 200-day Simple Moving Average (SMA) lingering just above the current trading level. The MACD oscillator’s weakness appears to be moderating, a sign that bearish pressure has eased on AUD/USD. Moreover, the key moving average is joined by the former neckline of a Head and Shoulders pattern, which may pose as a level of resistance.

AUD/USD DAILY CHART

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