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.

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