Thursday, July 19, 2012

EUA: Disillusioned due to regulatory news

Although the EUA Dec 12 was in a declining trend already since it reached a local high at EUR 8.48 on 29 June (MACD gave a sell signal 9 July already), the downward movement accelerated when Reuters came out with regulatory news on Tuesday, 17 July.

According to “well-placed sources from Brussels” the EC report to be published 25 July will not contain the exact measures how the EC plans to modify the auction regulation in order to cut the supply of allowances. 

The Commission is now expected to publish only a clarification of the legal basis of an intervention.
Although market has to wait until next week to get a clear picture, the leaked information had a bearish effect on the prices as it suggests that it might take months until the final decision is reached. A note from the International Emissions Trading Association said that it “could be a six-month process” for the EU to intervene in the scheme. 

With a significant volume of 28.1mn the EUA Dec12 fell to EUR 6.80 yesterday and it continued the trend until EUR 6.68 today. 

If the trend continues, the price can easily reach EUR 6.17, a local low from early June. 7.00 was only a psychological level, where buyers stepped in last night. Below this, already the 6.80 gave up the ground and with this high volatility and without any support it can fall even below the historical low of EUR 5.99.
It seems now that the fact that the Relative Strength Index (RSI) is at 31.3 (signalling oversold market) and that Brent is above USD 106 don’t bother market participants at the moment.

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