Thursday, November 29, 2012

EUA Dec12: Santa brings just a storybook

The European Commission announced the 29th of November, after the market closed that there would be no vote about the backloading proposal of 900 million allowances from Phase 3 auctions on the meeting of the Climate Change Committee on the 13th of December. The Commission only asked the Member States to indicate their positions on the draft amendment of the Auctioning Regulation.

The European Parliament and Council should first amend the ETS Directive giving the Commission the legal right to amend the Auctioning Regulation. Member States will vote on the backloading only once this legislative process is concluded and this decision goes for three months scrutiny to the Parliament and the Council as well. 

The announcement reduces the chances of the backloading being adopted any time soon to zero (Bloomberg New Energy Finances sees the earliest possible date of the adoption November 2013) and pushes prices lower on the slope.

The doji candle on Tuesday indicated some hesitation of the EUA Dec12, but the price found its direction Wednesday afternoon. After hitting the daily high at EUR 6.84 in the morning the price moved downwards the whole day long on Thursday. The declining trend accelerated (with a huge volume) in the last 30 minutes of the trading and the price closed just 3 cents above the daily low of EUR 6.55. 

The mid-term technical picture didn't change a lot. The MACD is in the negative territory and the Relative Strength Index (RSI) is near oversold territory at 33.1. The EUA Dec12 is still in the range of EUR 6.45-7.17 we got used to in the second half of November. 

Now it seems, however, more likely that it will break the range downwards. The 20 days moving average crossed its 200 days moving average yesterday from above.

The first support level is at EUR 6.45, but there is a chance to visit the all time low of EUR 5.99 again. I'm still searching for reasons that could help the price testing resistance levels again.

Monday, November 12, 2012

EUA Dec12: Optimism about back-loading over-weighing at the moment

The price of the EUA Dec12 reached the upper level of the ascending triangle we wrote about in our last entry.

It is interesting to observe the momentum bulls gained on the market considering last week’s performance: Last Monday we saw a hanging man formation (short body with a little upper shadow) followed by a bearish engulfing on Wednesday. In the second half of the week the price moved sideways.

Today, however, the price managed to break the level at EUR 8.50 that served as a resistance for a long time. We had an intraday high at EUR 8.73 today (and market didn't close yet!), a level not seen since March. It seems that market participants are speculating on a positive message of the reports to be published this Wednesday. The European Commission is expected to issue three reports the 14th of November:

a. A suggestion for a number of allowances to be withheld from Phase 3 auctions and loaded back by the end of Phase 3 (2016 or 2018).
b. An impact assessment of the back-loading.
c. A summary report on the functioning of the EU ETS called Carbon Market Report (CMR) that will contain long-term measures to tackle the massive oversupply of the scheme.

It is important to mention that the documents will show the engagement of the Commission to solve the problem of the oversupply, but they don’t imply immediate action. The proposal has to be approved by the Climate Change Committee that is not expected to happen before the 13th of December and the law goes than to the European Parliament for three months scrutiny. This means that any change might be implemented in 2Q2013 as the earliest.

Market might repeat the same pattern we saw in February, before the ITRE vote happened and in July before the back-loading proposal had been published: Speculators push up prices and after the decision/publication they decide to realize the profit and put it into their pockets.

After breaking the EUR 8.50 the next strong resistance level can be found at EUR 9.63.

In the opposite direction the most important support levels are at EUR 8.50, EUR 8.00 and EUR 7.50.
MACD is suggesting further price appreciation, RSI at 66.9, near overbought territory.