Monday, January 16, 2017

EUA Dec17: Strong auctions kept the price near 5 euro

After the nosediving in the first days of the year, the strong result of the first auction of 2017 halted the decline of the price last Monday. The benchmark contract finished the day with a gain of 4.6%.
As the first auction results of the year did not disappoint market participants, the benchmark carbon contract found a good support at the 5.00 euro level and increased on two consecutive days. After opening at 5.28 euro on Tuesday, the price increased continuously during the day to hit an intra-day maximum of 5.71 euro. From here the price stabilized and finished the day with a gain of 0.24 euro or 4.5%.
After opening in line with Tuesday’s settlement price the benchmark carbon contract tested both the upside and downside on Wednesday. By the end of the day the price produced a doji candle indicating the indecision of the market participants, if there is further room for a price appreciation. The 20DMA stopped the rally.
The support level at the cross of the 200DMA, the 30DMA and a Fibonacci level was not enough to keep the price from falling on Thursday. The benchmark carbon contract slipped lower continuously during the day hitting an intra-day low at 5.04 euro. By the end of the day the price was not able to recover and closed just 1 cent above the daily minimum. The price cancelled almost all its weekly gains.
The benchmark carbon contract continued its downward trend on Friday, approaching the weekly minimum at 4.92 euro, but the strong German auction reversed the price movement. By the end of the day the EUA Dec17 recovered and closed in line with the settlement price of Thursday and the previous Friday.
The RSI did not leave the neutral territory, but the MACD slipped below zero (a bearish signal).
The main focus of the carbon market participants will be on the four auctions this week (offering more than 17 million allowances, but 5 million less than last week) and on the negotiations about the post-2020 reform of the EU ETS among member state representatives. 
In addition there will be couple of important events this week outside the carbon market, that might have an impact on markets in general and the carbon market might be no exception. 
British PM Theresa May is expected her "big Brexit speech" on Tuesday with the market expecting her more clarity about the terms and conditions the UK prefers when separating from the EU.
On the same day, the European Parliament elects its new president. Considering the conflict between the tow biggest political groups, the election of the new president might have an impact on the ETS legislation process as well.
And last, but not least the new US President will be inaugurated on Friday. Any indication about policy plans of the new administration might have an impact on the financial markets globally.
With the support level at 5.30 euro broken (the 200DMA, the 30DMA and a Fibonacci level being here), the technical picture of the EUA Dec17 chart got gloomier. The next support levels are last week's minimum at 4.92 euro, then at 4.60 euro (a local low from 16 December, when the Christmas rally started) and at the December minimum at 4.01 euro.
In a positive scenario, the former support at 5.30 euro will be the first resistance level.

 Source: Bloomberg L.P., ICE

Monday, December 19, 2016

EUA Dec16: ENVI proposals and power prices lifted the price of allowances

The ambitious reform proposals adopted by the environment committee of the European Parliament and the higher German power prices (+8.9% w/w) lifted the price of the EUA Dec16 by 10.5% last week.
The agreement between OPEC and non-OPEC countries the previous Saturday to reduce oil production by an additional 558k barrels per day from January and the strong auction result gave wings to the EUA Dec16 on the first trading day of the last week. The price hit an intra-day maximum of 4.81 euro, a level last seen 30 November.
As the market participants were waiting for news from the ENVI negotiations, the EUA Dec16 moved in a tighter than usual daily range on Tuesday. Although it slipped to a daily minimum of 4.70 euro, it did not fall back into the declining trend channel from November. The increase in the afternoon, on the other hand, was capped by the 20DMA. The price closed at 4.79 euro, approximately at the middle of the daily range. The relatively strong price lifted the MACD above the signal curve on Tuesday, which was a bullish signal.
After the shadow rapporteurs of the post-2020 ETS reform reached a compromise Tuesday evening, the EUA Dec16 opened with a gap up Wednesday morning. The price jumped to an intraday high at 5.19 euro in the first minutes of trading (almost reaching the 200DMA), but retreated quickly to the 5 euro level. The cancelled UK auction pushed the benchmark contract to a daily minimum of 4.88 euro, but the shock didn’t last long and the price targeted the 5 euro level again in the afternoon. By the end of the day the price was at 5.01 euro, up 22 cents or more than 4% from Tuesday’s settlement price. The candle looked like a doji, indicating the hesitation of investors before the key vote in the environment committee of the European Parliament on the next day.
As the outcome of the ENVI vote did not cause major surprises, the benchmark carbon market remained stable around 5 euro on Thursday. The preference of a higher linear reduction factor lifted the price to an intra-day high of 5.14 euro. This was, however, still below the Wednesday high, because market participants are aware of the preference of the member states for a 2.2% linear reduction factor, as proposed in October 2014. The weak auction then pushed the price to a daily minimum at 4.83 euro. By the end of the day many investors decided to take profit and the EUA Dec16 lost 17 cents or 3.4%.
The depreciation continued on Friday to 4.57 euro. In the afternoon, however, bulls invaded the trading floor and lifted the price to 5.00 euro again.
The European member stated continue debating the reform of the EU ETS this week. They were challenged by the ambitious proposals of the MEPs in the environment committee. As a consequence, market might wait further for the final position of the European Council. (Although it was scheduled for 19 December). Any news from the negotiations in the Council can increase the price volatility this week as there are not many other events that could impact the carbon market.
The price of the allowances might be supported by the fact that there won't be any auctions this year anymore. Daily auctions will resume 9 January.
We expect the price to consolidate around 5 euro before the Christmas holidays.

 Source: Bloomberg L.P., ICE

Monday, December 12, 2016

EUA Dec16: ENVI vote to increase volatility this week

The benchmark carbon contract had a volatile week between 5-9 December and the aggregated volume was like in the time of compliance.
The price fell quickly below 4 euro on Monday. The benchmark carbon contract fell to a daily minimum of 3.97 euro, just 10 cents above the 2016 low before it recovered. By the end of the day, the EUA Dec16 reduced all its losses and closed 7 cents above the previous Friday’s settlement price.
The EUA Dec16 had another volatile day on Tuesday and moved in a range of 51 cents. The benchmark carbon contract had a weak start to the day and the weak energy mix exercised a pressure on it. The strong auction, however, helped the price to recover. In the last hour of trading, comments about a stricter MSR initiated a rally in the price which jumped to an intra-day maximum of 4.54 euro and finished the day with a gain of 3%.
Some late coming investors pulled the price to 4.62 euro Wednesday morning cheering about the prospect of an agreement in the ENVI committee. Falling power prices, however, dominated in the afternoon and pushed down the price to an intra-day minimum at 4.27 euro. The benchmark contract was not able to recover and closed just 3 cents above the daily minimum.
After a boring start the EUA Dec16 jumped up and down in tandem with the euro on the announcement of the ECB on Thursday. After hitting an intra-day low at 4.24 euro, the rally lifted the price to 4.65 euro and it remained in the positive territory until the market closed as many short positions might have been closed (+31 cents or 7%). Although 4.60 euro was a strong resistance in the recent days, the rally in the afternoon helped to form a bullish engulfing in the chart.
The price then hit a new December high on Friday at 4.78 euro due to some short covering early in the afternoon, but the closing was less ambitious as the price lost 15 cents in a daily comparison. 
This way the price retested the upper edge of the declining trend channel, but was not able to break above and reverse the trend. 
In the first half of last week the 20DMA slipped below the 200DMA (a bearish signal) and the price is still in a declining trend channel.
The main focus is on the vote in the environment committee of the European Parliament about the post-2020 reform of the EU ETS Thursday morning. 
Should the ENVI vote boost the price, the price might break out upwards from the channel. In a negative scenario the channel remains valid.
Another support might be the lack of auctions from next week. Daily EUA auctions will only resume 9 January.

Monday, December 5, 2016

EUA Dec16: Political uncertainty pushed prices lower by 14% last week

Uncertainty about the ENVI vote on the post-2020 reform of the EU ETS and about the Italian referendum pushed down the EUA Dec16 by 14% last week.
The news about the faster than expected reduction of coal fired capacities put the EUA Dec16 under pressure on Monday. The price fell continuously during the day and hit a daily minimum of 4.65 euro. By the end of the day the price reduced its losses and closed at 4.75 euro, a loss of 25 cents or 5% from Friday.
The EUA Dec16 hit another 2-month low on Tuesday on the possibility of a delayed ENVI vote, higher EU energy efficiency targets and pessimism about the OPEC meeting. The depreciation fastened and the price even fell from the declining trend channel. A local low near 4.40 halted the depreciation.
The benchmark carbon contract halted the downward move and was little changed on Wednesday as the 30% energy efficiency goal announced by the Commission seemed to be priced in. After the UK EUA auction cleared, the bellwether contract started to trickle up. Supported by rallying oil prices on the OPEC agreement, the EUA Dec16 price reached an intra-day high at 4.81 euro. The price slipped down from there and closed at 4.61 euro, up 2 cents day-on-day. 
The EUA Dec16 moved in a 5 cents range on Thursday. Despite the positive opening mood (4 cents above Wednesday’s settlement price), the price fell quickly to 4.45 euro in the morning. The strong auction result, however, reversed the price direction and lifted it to an intra-day maximum of 4.65 euro. The tweet in the afternoon about the uncertainty of the December ENVI vote by the rapporteur pushed the price lower again to a new daily minimum of 4.40 euro. The settlement price was just 6 cents higher. The last two candles of the chart formed a bearish engulfing (again) suggesting that the price might continue its declining path.
The bearish engulfing proved right, as the price slipped to 4.25 euro on Friday, a level not seen since 22 September. It closed the week just 5 cents higher, with a loss of 14%.
The declining trend got confirmed by the negative MACD, some bearish engulfings and the 20/30DMA cross recently. There is also a head-and-shoulders form in the chart. Should it prove right, it points to a support level at 4.10 euro. 
Considering the risk stemming from the events of this week (“no” majority in Italy, no ENVI vote etc.), the price might fall even below that level and retest the 2016 low at 3.87 euro.
In a positive scenario, the price might retest the upper edge of the declining trend channel near 5.00 euro. This might be a case, if the MEPs in the environment committee of the European Parliament adopt ambitious amendments to the post-2020 reform of the EU ETS. The relative strength index (RSI) slipped below 30 end of last week and the price trades at the lower Bollinger band, suggesting that a correction might be in the cards.

Source: Bloomberg L.P.

Monday, November 28, 2016

EUA Dec16: Sharp losses on bearish technicals

The weak energy complex pushed the EUA Dec16 down to a new local low at 5.31 euro on Monday. When the price fell below the support of 5.38 euro, the decline got faster as many stop-loss orders might have been triggered. The price, however, didn’t reach the 200DMA at 5.24 euro (also a Fibonacci level). A correction started in the afternoon and the price appreciation got faster when the news first appeared about the rapporteur of the post-2020 reforms to propose ambitious changes to the MSR. By the end of the day the losses have been reduced to 10 cents or 1.8% and the price returned into the comfort zone between 5.40 and 6.10 euro.
The benchmark carbon contract moved in a narrow range of 11 cents on Tuesday. The intra-day range was the narrowest since 13 September showing the hesitation of the price about which direction to take. The price closed just 3 cents higher (+0.5% d/d), but the decline of the last days pushed the MACD into negative territory, which is a bearish signal.
After opening 3 cents below Tuesday’s settlement price, the EUA Dec16 reached an intra-day high at 5.64 euro on Wednesday, before falling back to 5.35 euro in the afternoon on news about the restart of a 900MW French reactor.
Pushed down by a weak auction result and expensive coal, the benchmark carbon contract declined to an intra-day low at 5.21 euro on Thursday. By doing so the price fell below the 200DMA and a Fibonacci level. By the end the day the price was able to recover and closed at 5.36 euro, down by 4 cents or 0.7% only.
The negative signals (MACD below zero, price falling below the 200DMA) proved right and the EUA Dec16 dived below 5 euro on (Black) Friday to hit an intra-day low at 4.94 euro, a level last seen in September. By the end of the day it managed to climb back to 5 euro, but not above the 200DMA. The list of the negative signals has been expanded by another one: the 20DMA fell below the 30DMA.
Taking into consideration all the above, we expect the price to fall further, although the several meetings of this week represent a risk to the price that can result in a high volatility. 

The Council’s working party on the environment continues discussing the post-2020 reforms of Wednesday. Also the shadow rapporteurs of the ENVI committee will debate the same topic this week. Any leaked information from these meetings can increase the volatility of the EUA price.
The European Commission will present its energy union package, including proposals to update the energy efficiency and renewables directives to align  them with the 2030 climate and energy framework, as well as a proposal to redesign of EU's electricity market on Wednesday. Higher ambition in these fields would affect the carbon price negatively.
The OPEC meeting on Wednesday is not directly related to the carbon market, but as we could observe a high correlation between the two commodities, the outcome of the meeting in Vienna might also have an impact on the EUA price.
Last, but not least, the auction volume increases to almost 18 million allowances this week adding pressure on the price. (In addition, the 2017 auction calendars published last Friday show that the supply will increase significantly in a yearly comparison.)
All in all, we are rather bearish for this week, but due to the heavy losses of the last week the price might simply consolidate around 5 euro.

Source: Thomson Reuters, ICE