Monday, July 9, 2012

Waiting for the EC report on EU ETS

Carbon prices ended last week just above 8.00 euro mark as lack of buying in the late afternoon forced people to close their long positions and sell into the falling market. High volume on the long red candle towards the close of the market confirms the forced selling (some StopLoss / ProfitTake order could have been activated).

 The UK auction from last Thursday (4.18x oversubscribed with clearing price of 8.12 - whereas spot market was few cents higher at that time) didnt create much of a selling pressure as traders on Thursday still anticipated (hoped for) further gains in the carbon prices. But as the EURUSD continued to weaken as the weekend approached and oil prices came down below 100 USD/barrel mark - traders closed their lenghts and carbon was set to finish lower. 

This shows the following: The only supporting factor for the carbon price might be the regulatory side, the expected EC report containing reform suggestions regarding the EU ETS. In the last couple of weeks, however, carbon showed a more significant correlation with the macro environment (the oil and the EURUSD mentioned above). Global economic worries are depressing prices. Market seems to believe less in the effectiveness of the agreed measures by the different central banks (ECB, BoE etc.). For this reason the following events have to be watched:

- This week EIB should published their report on June NER300 sales
- Also we have few economic data coming out this week from France, Germany and Italy
- Today From 14:30 -16:30 CET Mario Draghi, President of the ECB, speaks in front of the Committee on Economic and Monetary Affairs (ECON) of the European Parliament, and again on Thursday
- On Tuesday there is the ECOFIN (EU Finance Ministers) meeting,

The carbon may react to the mood of the news coming out from the above publications.

Regarding the EC report we do not expect any further comments until publication as the information is market sensitive. The 8.00 euro level might offer a good (mainly psychological) support for the carbon price, if negative mood prevails. In the case, this support breaks, the price can easily fall to 7.80 euro (a Fibonacci level and the 20-days moving average are waiting here).

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