Monday, August 14, 2017

EUA Dec17: Auction volume to decrease further due to public holiday

After a relatively strong start the EUA Dec17 turned lower last Monday morning. The decline accelerated after the auction cleared at a 6 cents discount to the secondary market, and the price hit a daily low at 5.27 euro. The improving dark spread helped the price in recovering until 5.32 euro in the afternoon, but the price turned lower in the afternoon again to finish the day with a loss of 1.3%. To reflect summer mood, the traded volume fell further from the daily average of 7.7 million seen last week to 3.7 million.
The EUA Dec17 contract opened Tuesday’s session at 5.32 euro and traded between 5.25 euro and 5.34 euro, before ending the day at 5.27 euro, where it also closed on Monday. A modest volume of 4 million EUAs were traded.
Despite opening one cent below Tuesday’s settlement price, the benchmark carbon contract recovered quickly and hit a daily high at 5.41 euro already before Wednesday noon. The price received good support from a strong energy mix. Especially, the improving dark spread had a positive effect. As a consequence, the price finished the day with a gain of 10 cents (+1.9%). After trading close to the lower edge of the increasing trend channel for two days, the EUA Dec17 returned higher and the risk of breaking below the trend channel decreased again. Tuesday`s and Wednesday`s candles formed a bullish engulfing, generally a positive sign, although the low summer volume does not support the technical signal.
The EUA Dec17 opened with a two cents gap up on Thursday and explored levels not seen since 19 July by hitting 5.47 euro during the day. Although power prices climbed higher, the rally in coal prices deteriorated the German dark spread and weighed also on the price of allowances. As a consequence, the price gave back all its gains from the day, and closed at 5.37 euro, unchanged from Wednesday’s settlement.
The price had a relatively volatile day within a 12 cents range on Friday. The price started the day at Thursday`s settlement level and slipped briefly to a daily minimum at 5.34 euro to climb to 5.46 euro early in the afternoon. By the end of the day the price returned close to its opening levels and kept only 2 cents from its gains.
Thanks to the reduced auction supply and the higher power prices, the increasing trend channel is unhurt and is expected to keep the price also this week.
There will be a total of 8.9 million allowances auctioned this week, 17.1% less than last week. There will be only four auctions this week due to a public holiday in Germany on Tuesday (Assumption Day). 
The lower auction volume will continue to support the price of allowances this week again, but temperatures returning to or below the seasonal average will decrease the demand for power for air conditioning, potentially also reducing the demand for allowances. We therefore expect the price of allowances to move between 5.20 and 5.62 euro this week.

Source: Bloomberg, ICE

Monday, August 7, 2017

EUA Dec17: First week of reduced auction volume brought a gain of 3.3%

Although it opened the day flat compared to previous Friday’s settlement, the EUA Dec17 fell quickly to a daily minimum at 5.10 euro Monday morning. The shock didn’t last long and the contract recovered to trade comfortably between 5.19 and 5.23 euro before the auction. The strong auction result then lifted the price to a new daily maximum at 5.29 euro. The worsening of the dark spread capped the gains. The benchmark contract therefore finished the day at 5.23 euro (+1.0% d/d). Monday’s candle was another doji, indicating the uncertainty of market participants about which direction to take. On the other hand, the 30DMA climbed above the 200DMA, generally considered as a positive signal. The traded volume of 5.7 million in the most liquid contract reflected summer mood already.
The benchmark carbon market moved flat in the first hours of trading on Tuesday, but the surprisingly strong auction result lifted the price to a daily maximum of 5.38 euro. Traders realized shortly after the auction that the high clearing price might have been a mistake and does not reflect real demand for the allowances. So the price returned to 5.30 euro where it stagnated until the end of the day. The closing price represents a gain of 7 cents (+1.3%) to Monday’s settlement. The price closed at the upper edge of the 5.10-5.30 euro range it was trading last week. It also managed to close above the 20DMA.
The EUA Dec17 traded comfortable in a range between 5.25 and 5.30 euro most of Wednesday. In the afternoon however buyers lifted the price above the strong resistance level at 5.30 euro. The price was unstoppable until 5.43 euro, a level not seen for 2 weeks. The price remained close to its daily maximum and settled at 5.43 euro, a gain of 2.5%.
The front year contract opened with a two cents gap down on Thursday and fell quickly to a daily minimum at 5.37 euro. Although the settlement price of the auction was slightly below the secondary market price, the cover ratio was the second best for the week, so the price started climbing higher again in the afternoon. The daily maximum was 5.45 euro, a 2-week high. By the end of the day the price retreated a little, and closed the day at Wednesday’s settlement price, at 5.43 euro.
After opening at Thursday’s settlement price, the EUA Dec17 was able to hit a daily maximum at 5.46 euro, but after the weak auction, sellers pushed the market lower continuously. Price hit a daily minimum at 5.32 euro and stopped just above the 20DMA. The price was not able to recover, and closed the day (and the week) at 5.35 euro.

Beside the energy fundamentals, auction results will be the most important factors to influence the price of allowances. As market participants had enough time to price in the reduced auction supply, we expect the price to move between 5.00 and 5.60 euro.

Source: Thomson Reuters, ICE

Monday, July 24, 2017

EUA Dec17: Last week with complete auction volume before August

The sell-off last Friday sent the benchmark carbon contract more than 6 lower in a weekly comparison.
The EUA Dec17 had a sleepy start to last week. The price traded comfortably in a 10 cents range between 5.39 and 5.49 euro. No new local minimum or maximum was reached. The price closed at 5.44 euro, closer to the upper edge of the daily range (+0.4% d/d). The traded volume decreased further. Last Thursday 18.5 million allowances traded in the benchmark contract, the Friday before this fell to 9.5 million and on Monday to 7.6 million.
The price of allowances posted another day of marginal gains on Tuesday. The front-year carbon contract rose steadily throughout the session receiving a push from the healthy auction results to test the upside at 5.58 euro in the late afternoon. However, the last half an hour of trading brought the prices back and they slipped almost to the daily lows. The EUA Dec17 contract closed the session at 5.46 euro, up 0.02 euro from the previous close.
The benchmark carbon contract was held in a 10 cents range on Wednesday. The price held relatively stable the whole day, but in the last hour of trading sellers pushed the price down by several cents. The EUA Dec17 finished the day at 5.39 euro, down 7 cents from Tuesday.
The price of the EUA Dec17 traded in a 5 cents range until noon on Thursday, but due the selling pressure in the last hour of trading the EUA Dec17 closed at its daily minimum, at 5.30 euro on Thursday, a loss of 9 cents or 1.7%.
Although Thursday’s close at the daily minimum did not bode well for Friday, the EUA Dec17 opened stable on the last trading day. News about a stricter EU process regarding diesel cars however soured the investor mood globally. Brent lost 2.5%, stock markets turned sharply lower and the carbon market was no exemption. The EUA Dec17 fell to a daily minimum at 5.07 euro and was not able to recover by the end of the day, finishing the week with a loss of more than 6%.
The negative mood that reached the market last week might be dented by the fact that daily auction volumes will be halved soon. 
Sellers pushed the price on Friday below the main moving averages, but the price only fell to the lower edge of the increasing trend channel that started mid-May and managed to remain in it. Should the price fall from the trend channel, the first strong support is the June minimum at 4.77 euro.
If the looming reduced supply supports the price enough, the benchmark contract might retest the Fibonacci level at 5.36 euro.

 Source: Thomson Reuters, ICE

Monday, July 17, 2017

EUA Dec17: New 4-month high reached last week

The benchmark carbon contract hit a new 4-month high and gained 1.5% last week helped by stronger fundamentals.
The EUA Dec17 opened the week with a 6 cents gap up that was not filled completely on Monday. The price of allowances increased continuously in tandem with the price of German power. When latter hit a new 2-year high at 32 euro per MWh, the price of carbon reached 5.56 euro, a level not seen since March. When power prices started weakening in the afternoon, the EUA Dec17 also turned lower. It hit a daily minimum at 5.35 euro and finished the day with a marginal gain of 1.1% at 5.40 euro. Monday’s candle is a shooting star (long upper shadow, short lower shadow and very small body), a warning signal that the price could enter a phase of correction after trading above the upper Bollinger band.
Although the price opened with a 3 cents gap down on Tuesday, it was able to climb to a daily maximum at 5.49 euro in the morning. (Monday’s high at 5.56 euro could not be reached.) The weak auction result and the lower power prices pushed the price lower step by step in the afternoon. The contract hit a daily minimum at 5.27 euro, but managed to climb back higher by the time the market closed. The EUA Dec17 finished the day at 5.33 euro, a loss of 7 cents or 1.3% in a daily comparison, so Monday’s shooting start candle seemed to provide a reliable signal.
Most of Wednesday, the benchmark carbon contract traded comfortably in a 10 cents range, but bulls lifted the price to a new daily maximum in the last hour of trading. The price of allowances was lifted by a rally in oil prices after data showed that US crude oil inventories declined more than expected. By the end of the day the EUA Dec 17 climbed 2.8% higher and closed above the upper Bollinger band again.
Positive market mood lifted the price of the EUA Dec17 Thursday morning to a new 4-month high at 5.62 euro (also a Fibonacci level). In the last hours of trading, however, the price of the German front year power turned lower and also some profit taking started in the carbon market, resulting in a daily loss of 2.2%.
Despite some initial hesitation that pushed the price to a daily minimum of 5.29 euro, the EUA Dec17 recovered Friday afternoon and closed the day with a gain of 1.1%.
Last week the price of allowances followed the components of the energy mix and was less impacted by the result of the daily auctions. This might change this week as the offered volume increases by almost 3% due to the Polish auction on Wednesday.
The stable increase of the price of German power, the improvement of the German dark spread and the recovery of the Brent, on the other hand, could counterbalance the negative effect of higher supply.

The technical picture is rather neutral for this week. Although the benchmark carbon contract trades most of the time at or above the upper Bollinger band, the relative strength index (at 63) leaves room for further gains. The price moves in an increasing trend channel since mid-May.

Source: Bloomberg, ICE

Monday, July 3, 2017

EUA Dec17: Consolidation near the 5 euro level expected

The benchmark carbon contract got support from strong auctions and higher power prices last week. As a consequence, it climbed back above 5 euro and gained 3.3% in a weekly comparison. 
After a flat opening Monday morning, the EUA Dec17 was able to climb two cents higher to a daily maximum at 4.89 euro, but then the price fell continuously during the day. Power prices got under pressure by the energy efficiency targets adopted by the representatives of the EU member states and the carbon price followed power down. The benchmark carbon contract hit a new monthly low at 4.77 euro, and was not able to recover by the end of the day. The price settled at 4.78 euro, just one cent above the daily (monthly) minimum. In the last four trading days the price hit a new local minimum every day, setting the start of a declining trend. The last two candles formed a bearish engulfing, another technical signal warning of further possible sell-off.

Despite the negative signals from Monday, the strong auction result (with the highest cover ratio since 22 May) and the good performance of the energy mix lifted the price of the EUA Dec17 3.3% higher on Tuesday. Market mood was positive already in the morning. As a result, the contract opened with a 6 cents gap that was not filled completely during the day. The two cents gap left between 4.78 euro (Monday’ settlement) and 4.80 euro (Tuesday’s minimum) will work as support in the next days. The price climbed back to 4.99 euro, but returned below the 20 and 30DMAs by the end of the day.
On Wednesday, the benchmark carbon contract moved in a narrow range of 10 cents between 4.88 and 4.98 euro. After the strong start in the morning the price moved sideways during the day and sellers pushed the price to the daily minimum, but then the contract was able to recover. The price closed at Tuesday’s settlement price at 4.94 euro. The traded volume of 7 million is in line with the June average. The sideway movement was not enough for the 20DMA to stay above the 30DMA which adds to the other bearish signals the chart provided recently.
Wednesday’s positive sentiment lifted the price of the EUA Dec17 further Thursday morning. The price climbed above the 5 euro level already in the first hour of trading and rallied higher during the day. It almost reached the 200DMA, but turned back lower from that resistance to close at 5.07 euro, a gain of 2.6%. The price opened and closed above the 20 and 30DMAs and it also settled above the 5 euro level. Thursday’s candle was the first one that closed outside the short term declining trend channel.
The price was not able to climb any further on Friday, but remained above the 5 euro level despite finishing the day with a  loss of 0.8%.
The chart of the EUA Dec17 provides mixed signals right now. 
On the positive / neutral side, the MACD did not slip below the zero line due to the positive days last week. The price even climbed above the short term declining trend channel that has been established in June. The relative strength index is in neutral territory (at 55).
On the other hand, the price found a strong resistance at the 200DMA at 5.16 euro and the upper Bollinger band at 5.13 euro. The 20DMA slipping below the 30DMA is another bearish signal.
Trading activity might be dented in the first two days of the week, due to the US bank holiday on Tuesday (Independence Day).
There will be five auctions this week, offering 22.1 million allowances slightly (+2.3% w/w) compared to last week. If auctions continue well bid, like we saw last week, they might support the price again.
All in all, we expect the price of the EUA Dec17 to move around 5 euro, between 4.70 and 5.30 euro this week.

Source: Bloomberg, ICE