Monday, February 20, 2017

EUA Dec17: 5 euro gravity to be tested by high supply

The risk of the plenary vote about the post-2020 reform kept traders away from the carbon market last Monday. The price moved in a narrow range between 5.07 and 5.17 euro for most of the day, but when MEPs started discussing reforms in the afternoon, the price turned sharply lower and fell to an intra-day low at 4.88 euro. The settlement price was just 2 cents higher. Monday’s black candle followed a bearish engulfing from the previous week and pushed the MACD below the signal curve.
The benchmark carbon contract consolidated below 5 euro on Tuesday, before the key vote in the plenary of the European Parliament about the reform of the ETS. The price dipped to an intra-day low at 4.93 euro, but managed to remain above Monday’s minimum. Due to short covering and buying interest below 5 euro,  the price started rallying in the last hour of trading and finished at 5.13 euro, a daily gain of 4.7%.
Despite the volatility before and after the vote in the plenary, the EUA Dec17 remained relatively stable on Wednesday. As the outcome was a good compromise of the amendments, the price stabilized near 5 euro after the vote. On the positive side, the 20DMA climbed above the 30DMA. 
The day after the vote in the Parliament plenary about the reform of the EU ETS the benchmark carbon contract remained stable, near the 5 euro level. The price traded roughly 10 cents below and 10 cents above this level. By the end of the day, however it fell below 5 euro and closed at 4.94 euro (-2.6%).
Friday started with a new weekly low in the carbon market, but despite a weak auction the bulls invaded the trading floor in the afternoon and lifted the price above 5 euro again. By the end of the day, the price was not able to keep its gains and finished again below 5 euro. Friday’s doji is a signal that the fight between buyers and sellers has not been decided yet.
The last week was characterised by a price converging towards the 5 euro level. In the lack of any major events expected, this might be the case this week as well.
The high supply this week (five auctions and last week for 2017 free allocation to be distributed) and the fact that the price fell below the lower edge of the wedge, increase the chances for more trades below 5 euro.

Source: Bloomberg, ICE

Monday, February 13, 2017

EUA Dec17: Uncertainty about plenary vote pushed down the carbon price

Despite slipping to 5.06 euro in the first hours of trading on Monday, the EUA Dec17 recovered after the strong auction and consolidated around 5.13 euro. The benchmark carbon contract closed at the lower edge of the daily range.
EUA prices edged slightly higher on Tuesday, but the traded volume remained below the monthly average. The EUA Dec17 started the day range-bound but moved upward after the auction results were published. The contract closed the session at 5.17 euro, up 0.07 euro from the previous close.
The benchmark contract touched slightly higher on Wednesday, supported by the wider energy markets. The bellwether contract traded on both sides of the previous close with an attempt to break above 5.28 euro, the intraday high, in late trading before coming back down to close the day at 5.22 euro, up 0.05 euro day on day.
The price rose on Thursday for the third consecutive day, lifted by German power and coal prices and came as high, and hit the intraday high at 5.44 euro, but prices fell from there to close the day 0.06 higher than the previous close.
The price had an ambitious start on Friday opening 3 cents above Thursday’s settlement price. Despite trying to climb higher, the previous day’s maximum at 5.44 euro could not be reached, because the price turned lower as the market started questioning the outcome of the vote of the plenary of the European Parliament about the reform of the EU ETS. The price fell below the 20DMA and closed at 5.12 euro. It dragged also the 30DMA to the 200DMA which is a bearish signal.

The price closed the week below the most important moving averages. In addition, the last two candles of the chart form a bearish engulfing which does not bode well for price increases this week. Depending on the outcome of the plenary vote about the ETS reform on Wednesday, the price could either fall below the 5 euro level and retest the January low at 4.60 euro or in a positive scenario, it could turn higher and after breaking the resistance of the moving averages, it could retest the 5.60 euro level.

Source: Bloomberg, ICE

Monday, February 6, 2017

EUA Dec17: Moving in a narrowing triangle

After opening with a 3 cents gap up, the EUA Dec17 climbed higher continuously last Monday. The price hit an intra-day maximum at 5.21 euro (just one cent below last Friday’s maximum). The CO2 price received support from higher power prices (due to strikes of utility workers in France) and expensive gas, which made coal more appealing for utilities. By the end of the day, however, the price was not able to maintain all of its gains and closed at 5.17 euro, but this still represented a gain of 25 cents (+5.1%).
Thanks to the continued support from higher power prices, the benchmark carbon contract increased in Tuesday’s trading. It managed to break the resistance at 5.30 euro and hit an intra-day maximum at 5.39 euro. The price kept its gains until the last minute of trading and finished at 5.36 euro, a gain of 3.7%. This was the first time in 6 days that the price was able to close above the 200DMA and the MACD crossed the signal curve, which was a positive sign.
The EUA Dec17 had a volatile day on Wednesday. It opened 4 cents above Tuesday’s settlement price and jumped to a daily maximum of 5.47 euro, but by the end of the day it fell back to close with a loss of 8 cents (-1.5% d/d). The close below the 200DMA suggested that Tuesday's strength was only temporary.
Although the EUA Dec17 opened 4 cents above Wednesday’s settlement price, it slipped quickly to 5.21 euro Thursday morning. The price then briefly touched 5.37 euro during the day, but returned to its daily minimum by the end of the day.
Despite the strong German auction on Friday the price was not able to climb higher and fell below the 20DMA to close at 5.16 euro and with a loss of 1.3%.
Thanks to the gains in the first two days of the week, the CO2 price closed 4.9% higher in a weekly comparison.
The intra-day range declined continuously since 26 January from 35 cents to 12 cents. This means that the price moves in a narrowing triangle. (See the chart below.) Traded volume in the benchmark contract was also declining day by day. Last Monday 13.3 million allowances traded compared to the 7.6 million on Friday, 3 February.
The technical signals are mixed. The 20DMA is below the 200DMA (bearish), but the MACD (although still below zero) crossed the signal curve (bullish). The relative strength index is in the neutral territory.
Speculation on the outcome of the vote in the plenary of the European Parliament might pull the price from the triangle. The price direction will depend on which amendments the market perceives most likely to be adopted. The more ambitious ones or those that are in line with the original proposal of the European Commission.

Source: Bloomberg, ICE

Monday, January 30, 2017

EUA Dec17: Last hour sell of pushed price back below 5 euro

The benchmark carbon contract had a relaxed start to last week. It traded between the support level at 5.30 euro and the resistance level at 5.60 euro on Monday.
After opening at 5.33 euro (the highest level of the day), the EUA Dec17 declined continuously to hit an intra-day minimum of 5.13 euro on Tuesday. The price was not able to recover by the end of the day and closed at 5.09 euro, a loss of 26 cents.
The EUA Dec17 was hesitating around 5 euro on Wednesday, but due to the high auction supply, the weak energy mix and the unchanged phase 3 free allocation, it closed below this level. Milder temperatures and  lower power prices continued to weigh on the price. As a consequence, the price finished the day 2 cents below the 5 euro mark.
Wednesday’s close below 5 euro invited buyers to the market and the EUA Dec17 climbed continuously higher on Thursday. The rally accelerated after the strong auction. The price hit an intra-day maximum of 5.25 euro and finished the day with a gain of 4.4%. The candle of the last 10 minutes suggested, however, that there might be traders on Friday taking the profit from their long positions due to the proximity of the resistance level at 5.30 euro.
The price remained stable for most of the day on Friday, but lost steam in the last hour of trading and turned back below 5 euro. The price closed just one cent above the weekly minimum at 4.91 euro which meant a weekly loss of 9.4%. 
With temperatures below seasonal average and the compliance season starting, the price found a support around 5 euro in the last week. On the other hand a strong resistance at 5.30 euro (20 and 200DMAs, Fibonacci level) limited the price appreciation and from this week on milder temperatures are expected. 
From a more distant perspective the price is moving sideways in a range between 4.60 and 5.60 euro since the second week of January. The number of black and white candles also suggests that the market is balanced (many market participants are well covered for 2016). 
The relative strength index (RSI) is in neutral territory (44) and the MACD is moving sideways below the zero line. The 20DMA, however, fell below the 30 and 200DMAs providing a bearish signal and increasing the chances for the price to trade rather near the lower edge of its comfort zone.
The first important event that could move the price out of this comfort zone will be the vote in the plenary of the European Parliament about the reform of the EU ETS 15 February. We might see prices moving sideways in the above range (4.60-5.60 euro) until then.

Source: Bloomberg, ICE

Monday, January 23, 2017

EUA Dec17: Rally after hitting a new 2017 low

Market mood turned gloomy last Monday (due to fears about hard Brexit and Trump’s threat to EU car makers). The situation got worse after the EUA auction which cleared at a 4 cents discount compared to the secondary market price and had a cover ratio below 3. After opening in line with last Friday’s settlement price the EUA Dec17 slipped lower continuously during the day. The price settled just 2 cents above the daily minimum, with a loss of 6.9%.
After opening 5 cents above Monday’s settlement price, the EUA Dec17 turned lower ahead of the next auction and the speech of the UK PM and tested the Fibonacci level at 4.62 euro (a new 2017 low). The strong auction result and the speculation that the UK Parliament could keep the country from leaving the EU in the very last minute, lifted the price of the benchmark carbon contract above 5 euro, to a daily maximum of 5.12 euro. Some investors decided to take profit from the short rally and the price closed therefore at 5 euro exactly (another Fibonacci level).
The benchmark carbon contract remained without direction on Wednesday. It opened with a 5 cents gap up, but turned lower immediately. After hitting a daily minimum at 4.82 euro, it recovered, but it was not able to climb back above 5 euro. The price settled at 4.84 euro, a loss of 16 cents or 2.6%.
The uncertainty continued on Thursday morning until the last hours of trading. In the afternoon, however, bulls invaded the market and  lifted the price above 5 euro. The rally accelerated when the price broke above 5 euro, which might have been a signal of short covering. The MACD was still in the negative territory and the RSI in the neutral territory, but the price closed above the declining trend channel which was a positive signal.
The rally continued on the last day of the week thanks to a strong energy mix. The benchmark carbon contract hit a daily maximum at 5.54 euro (two cents below the 20DMA) and closed the day with a gain of 23 cents or 4.4%.
In the last two trading days the price closed above the short term declining trend channel. Should the price be able to keep its strength, the next resistance is the 20DMA and a Fibonacci level at 5.61 euro, followed by a local high at 5.82 euro and another Fibonacci level at 5.99 euro. In a negative scenario, the price has to face the support levels at 5.30 and 5.00 euro.

Source: Bloomberg, ICE