Natural gas has formed higher highs and lower lows visible on its 4-hour time frame, creating a megaphone pattern with the next resistance around $10.000.

The commodity has been on a tear for the most part of the month, possibly setting its sights on the top of the megaphone from here. Technical indicators, however, are reflecting some weakness among bulls.

The 100 SMA is below the 200 SMA for now, indicating that the path of least resistance is to the downside or that the selloff could resume soon. However, the gap between the indicators is narrowing to signal weakening bearish pressure and a potential bullish crossover.

Stochastic is already indicating overbought conditions, though, which means that buyers are exhausted and might let sellers take over from here. RSI is also in the overbought area to reflect weakening bullish momentum soon.

Natural gas is drawing a lot of support from expectations of higher purchases of cooling commodities due to the ongoing heatwave in Europe. Keep in mind that the region is working on reducing its reliance on Russian commodities, so investors are wary of a supply crunch if demand keeps rising.

The upcoming inventory report from the Department of Energy should have more insights on supply and demand conditions, including LNG export activity. Another large draw in stockpiles would confirm that purchases are accelerating or that supply is struggling to keep up.

However, the bigger catalyst for now is the FOMC decision during which the US central bank might announce another aggressive tightening move. The Fed could hike rates by 0.75% to 1.00% which would ramp up borrowing costs and therefore weigh on business and consumer spending.

In turn, this would translate to lower purchases of commodities, as well as weaker investor risk appetite – both of which could erase some of natural gas’ gains.