Tuesday, April 18, 2017

EUA Dec17: Consolidation near the 5 euro level

In a short week before the Easter holidays, the EUA Dec17 gained 1.2%.

Thanks to a strong auction the price of the EUA Dec17 remained stable for most of Monday’s trading session. In the last 10 minutes of trading, however, the price turned sharply lower and finished the day one cent above its daily minimum, at 4.79 euro, with a loss of 10 cents from previous Friday’s settlement (-2.0% d/d).

Despite some intra-day volatility, the benchmark carbon contract remained within its comfort zone on Tuesday. After opening at Monday’s settlement, the price turned higher and reached 4.90 euro. The price then turned lower after noon. Reversing the pattern of the previous two days, bulls lifted the price in the last hour of trading to a new intra-day maximum at 4.92 euro. The closing price was just 5 cents below this level

The EUA Dec17 climbed higher step by step on Wednesday to hit an intra-day maximum at 5.04 euro in the afternoon. The benchmark carbon contract was not able to keep all its gains and finished below the 5.00 euro level. The closing price still represents a gain of 1.2% from Thursday’s settlement price. On the positive note, the price closed above the 20DMA.

In an Easter holiday mood, the benchmark carbon price moved in a narrow range of 11 cents on Thursday. The price opened at Wednesday’s settlement price and lost just one cent before climbing to an intra-day maximum at 5.03 euro. Gains however could not be kept by the end of trading and the price closed at 4.95 euro, a gain of 2 cents from Wednesday.

Technical indicators of the EUA Dec17 chart send a neutral signal. The relative strength index is in neutral territory (at 50). The MACD is approaching very slowly the zero line, but is still in the negative territory. The Bollinger bands narrowed, but the price closed at the mid band.

Although there is a slow increasing trend in the price since the last week of March, the price seems rather to consolidate between 4.60 and 5.30 euro. This range might keep the price this week as well.
 Source: Bloomberg, ICE

Monday, April 10, 2017

EUA Dec17: Technical indicators provide mixed signals

The EUA Dec17 had a positive start to the week on Monday. It opened 6 cents above the previous Friday’s settlement price, but retreated before the publication of the 2016 verified emissions data. As the data suggested at first sight that the emissions increased from 2015, the price jumped to a daily maximum of 4.91 euro. Later on, however, the market realized that there was a French installation that most probably reported erroneous data without which emissions declined by the expected extent. As a consequence, the price turned lower and consolidated around the 4.75 level in the afternoon, but bulls lifted the price higher in the last hour of trading again. As a consequence, the EUA Dec17 finished at 4.87 euro (+3.8%).
The EUA Dec17 traded in a 10 cents range during most of Tuesday, but the last hour of trading woke up bears, who pushed the price down to 4.66 euro. The price closed at the lower edge of the daily range, at 4.65 euro, a loss of 4.7%. This way all the gains from Monday afternoon have been cancelled and the price got close to the support level at 4.60 euro.
The EUA Dec17 opened with an 8 cents gap up from Tuesday’s settlement price, but filled in the gap quickly, in the first hour of trading already. Higher power and oil prices, and a strong UK auction lifted the price to a daily maximum at 4.93 euro. Profit taking started in the last hour of trading and pushed the price back to 4.82 euro.
A strong energy mix, compliance purchases and short covering lifted the benchmark carbon contract on Thursday. After opening at 4.82 euro in the morning, the price climbed continuously higher during the day. The break of the resistance level at 4.95 euro accelerated the price appreciation, as many traders closed their short positions. The price climbed above the 20DMA and hit a daily maximum of 5.14 euro, a level last seen 20 March. The rally was halted by the 200 and 30DMAs. By the end of the day the EUA Dec17 gave back some of its gains, but it still managed to close above 5 euro, and finish 5% above Wednesday’s settlement price. The rally lifted the MACD above the signal curve, which is a positive signal. In addition the price rose above the declining trend line of March.
In the first half of Friday, the EUA Dec17 hit a new local high at 5.19 euro, but shortly later profit taking started which accelerated towards the end of the day pushing down the market to 4.87 euro. The price finished at the lower edge of the intra-day range, at 4.89 euro and fell back below key levels like the 5 euro level and the 20DMA.
Despite the sell-off Friday afternoon, the price closed 4.3% higher in a weekly comparison.

The technical indicators provide mixed signals for this week. The relative strength index is in neutral territory (48). The MACD is below zero, but due to the rally last Wednesday and Thursday, it has been lifted above the signal curve which can be considered as a positive sign. 
On the other hand, the fact that the price was not able to remain above 5 euro and fell below the 20DMA last Friday put question marks to the strength of the price. In addition, the 30DMA fell below the 200DMA, also a negative signal.

Compliance demand and the lack of the German auction on Friday (Good Friday is a bank holiday) might provide stability to the CO2 price this week, but low electricity demand due to the holiday season can put a cap on potential gains. 

We therefore expect the price to consolidate in the range of 4.60 (March low and lower Bollinger band) and 5.30 (a Fibonacci level) euro this week.

Source: Bloomberg, ICE

Monday, April 3, 2017

EUA Dec17: 4.60 euro was key support before the publication of the verified emissions data

The benchmark carbon contract finished last week 1.7% lower as traders took profit before the publication of the 2016 verified emissions data and cancelled three days of gains. The relative strength index has been pushed below 40 and the MACD deeper into negative territory.
On the first trading day of the last week, the EUA Dec17 extended its losses and hit a new 2017 low at 4.58 euro. The price fell below the previous 2017 minimum at 4.62 euro during the day, but managed to climb back one cent above this level by the end of the day. The decline pushed the MACD deeper into the negative territory, and the RSI close to 30.
The benchmark carbon contract started on Tuesday at 4.62 euro and increased continuously during the day. It hit a daily maximum at 4.82 euro, but fell back in the afternoon to close at 4.74 euro (+11 cents of 2.4%).
The carbon market received positive signals Wednesday morning, but there were significant risk factors (Brexit, Polish auction) that made traders cautious in the morning. After the surprisingly strong Polish auction, however, the price rallied to the resistance level at 4.84 euro, but it was not able to maintain its gains until the market closed. As a consequence, the EUA Dec17 closed flat to Tuesday’s settlement.
The 5 cents gap from Thursday morning was quickly filled as the price fell from the 4.81 euro opening price to a daily minimum of 4.64 euro. A strong energy mix, a revised US GDP and short covering made the price rally in the afternoon to 4.98 euro, a level last seen a week ago. The price closed at 4.92 euro, a gain of 3.4%, but the 20DMA fell below the 200DMA which is a bearish signal.
The benchmark carbon contract was relatively stable almost the whole Friday long (trading between 4.91 and 4.95 euro), but bears invaded the trading floor in the last hour of trading to reduce their positions before the publication of the 2016 verified emissions data on Monday. The price fell steeply 4.86 euro to a daily minimum of 4.67 euro.
The direction the EUA Dec17 will take this week will be defined by the 2016 verified emissions data. If emissions declined more than expected by the market (a decline of 2-4% from 2015 levels), the price might fall below the support level at 4.60 euro. If emissions only fell by a smaller extent than the linear reduction factor of 1.74%, it means that the oversupply did not increase further. This might support the price and pull it towards 5 euro.

Source: Bloomberg, ICE

Monday, March 27, 2017

EUA Dec17: Bears lining up in view of several risk factors

Last Friday's sell off pushed the price of the EUA Dec17 to a new two-month low.
After seven consecutive sessions in neutral territory, the front year carbon contract broke through its comfort range and tested the downside last Monday. Prices fell below 5 euro for the first time in a month after bearish developments in other energy markets and a weak auction result. The EUA Dec17 contract closed the session at 4.99, 0.15 euro (-2.9%) lower than previous Friday’s close.
After opening at 5 euro (1 cent above Monday’s settlement price), the benchmark carbon contract fell to a daily minimum of 4.93 euro on Tuesday. Most of the day the price traded range bound between 4.93 and 4.97 euro, to finish at the lower edge of the range, at 4.94 euro.
The option strike price gravity and the strong auction helped the benchmark carbon contract to reverse from the February low at 4.85 euro on Wednesday. The price was lifted to a daily maximum of 5.02 euro, but it was not able to stay above this level. By the end of the day, the price returned below 5.00 euro and closed at 4.97 euro. This level still represented a gain of 3 cents of 0.6% compared to Tuesday’s settlement price. The traded volume was also exceptionally high (due to the option expiry) with more than 20 million allowances traded in the benchmark contract only (compared to the March average 12.7 million).
EUA prices continued to trade in a tight range on Thursday. The Dec17 contract opened the day at 4.97 euro, then held around the 5 euro level throughout the rest of the day. The bellwether contract tested intraday high at 5.05 euro before closing the session at 4.98 euro, up 0.01 euro day on day and leaving a doji candle.
On the last trading day of the week, the benchmark carbon contract opened at 5.03 euro and fell continuously during the day. In the afternoon the price hit a new two month low at 4.71 euro, breaking below the key support at 4.85 euro. The settlement price at 4.77 euro represents a loss of more than 7% from the previous Friday.
The price landed in a vacuum on Friday and the next support level is at 4.61 euro, the 2017 minimum. At the moment we see the following reasons that might push the price towards the next support levels:
  • Although the number of auctions remains the same than last week, the volume offered increases as the Polish auction on Wednesday also offers allowances from a cancelled 2016 auction. 
  • The European Commission will publish updated information about 2017 free allocation on Friday, 31 March. The last update showed that Italy and Spain are the countries owing the most allowances to their installations. The Italian authority, however, published last week a decision (delibera) about the 2017 free allocation, which generally signals that the distribution of the free allowances is about to start.
  • Installations in the EU ETS have to report their 2016 verified emissions by Friday, 31 March. The market consensus is that due to a higher gas use in power generation emissions declined sharper than the linear reduction factor of the overall ETS cap (1.74%) resulting in an increase of the surplus allowances.
  • This is the week, when the UK triggers Article 50 of the Lisbon Treaty and starts Brexit negotiations with the EU officially. It is still uncertain how Brexit affects British companies' ETS membership.
  • Last, but not least, global investor mood soured after US President Trump was not able to convince his own party members to abolish Obamacare. His defeat increased scepticism about the other reforms that he promised during his election campaign and that lifted stock indices to record levels.

From the technical analysis' point of view, the space is open for the EUA Dec17 to test the support levels at 4.62 euro (2017 low) and at 4.01 euro (December 2016 low). The relative strength index (RSI) is in neutral territory, at 37 leaving space for further declines.   

Source: Bloomberg, ICE

Monday, March 20, 2017

EUA Dec17: Consolidation around the 200-day moving average

The benchmark carbon contract moved in a narrow range between 5.09 and 5.25 euro last week, but could not get away from the 200DMA (now at 5.13 euro).
After opening 1 cent below previous Friday’s closing level, the EUA Dec17 fell to a daily minimum at 5.09 euro last Monday. By the end of the day, however, it managed to recover and closed at 5.16 euro, a loss of just 0.2%. The price moved in a narrow range of 10 cents during the day. It left a doji candle indicating uncertainty of market participants.
The benchmark contract opened with a 2 cents gap up on Tuesday. The price jumped to a daily high at 5.23 euro in the morning, but moved in a narrow range of 14 cents later during the day. Although it touched Monday’s low at 5.09 euro, it did not hit a new local minimum. The price settled at 5.11 euro, 5 cents below Monday’s close (-1.0%). The loss pushed the MACD into negative territory which is a negative signal.
After testing the support level at 5.09 euro for the third time, the lack of auctions and the higher power prices helped the EUA Dec17 to climb to the 20DMA on Wednesday. The price reached a daily maximum at 5.25 euro and finished the day just 5 cents lower (+1.8% d/d). The traded volume of 8.2 million, however, remained below the February average of 10.4 million.
The benchmark carbon contract moved between the same daily minimum and maximum levels on Thursday than it did on Wednesday. Interestingly, the 5.09 euro level kept the price from falling for the fourth day already. After Wednesday’s white candle, however, a black one followed on Thursday. The price lost 5 cents (-1.0%) by the end of the day.
On Friday, the price moved in an even narrower range of 5.10 and 5.20 euro, to finish at the lower edge of the range, at 5.14 euro.
The price consolidates at the 200DMA and most of the technical signals do not point into a certain direction. The RSI is in a neutral territory (at 47) and the price moves between the two Bollinger bands. The only exception is the MACD that slipped below the zero line last week providing a bearish signal.
Fundamentals are also rather pointing downwards:
There will be five auctions this week, increasing the supply of allowances by more than 4 million in a weekly comparison. Most of the installations are covered for 2016 (meaning low compliance demand), while mild temperatures and cheap gas might dent the appetite of utilities as well. This might result in weak auction results this week.
All in all, we see more signals pointing downwards, but price levels around 5 euro are appealing enough for many companies to purchase allowances for future years when they might face higher prices due to the reform of the EU ETS. Our base range for this week is between 4.85 and 5.49 euro.

Source: Bloomberg, ICE