Thursday, September 22, 2011

The Big Picture

We think it might be useful to take a look at now the broader markets that could have a significant impact on the carbon prices in the coming days.

The FED statement resulted in a sharp fall of the stock indices yesterday. FED said they would replace short-term debt in the central bank’s portfolio with longer-term Treasury bonds in an attempt to further cut borrowing costs. This won’t result in much excess liquidity that the markets hoped for. The FED also said that it was acting in view of “significant downside risks to the economic outlook, including strains in global financial markets.”
The SP500 broke down a trendline support after forming a double top. What is interesting is that this breakdown happened already before the FED statement. We are at a longer term trendline support now. Should this fall the 1130 and 1080 supports will be important levels. It is not unlikely that we would see new lows in the coming days or weeks.

Due to the European problems the DAX has been anyway weaker for a while now relative to the US indices. It has also broken down the trendline support yesterday. The next important level is at around 5000. Breaking this resistance could result in further sharp decline.

Oil has been very volatile since the beginning of August hence very difficult to trade. It is exhibiting also a sort of trendline support breakdown despite the fact that we saw three consecutive sharp declines in crude inventories.

There is no doubt that mainly the European news drive the markets, therefore it is important to watch the EURUSD price development. We saw here a more obvious trendline support breakdown. Now the 1.35 low is the critical support level. We had a few lower highs in a row that suggest that this support level might not be very strong.

The overall picture seems to be pretty bearish which is not a good news for carbon. We are at a critical support level now at around 11.60. If we break below this level we might retest the low around 10.00. 

Summing all this up we don’t think it is wise to take any long position in these instruments now. We watch only short signals now to enter the markets.

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