Monday, December 16, 2013

Go short EUR/USD, if you believe in dectaper!

The most important event of this week is the FOMC meeting and the press conference on Wednesday at 8:30pm CET.
With recent US macro data (GDP, employment, housing market) providing hope that the economy is on track to recovery, there is a chance that the Fed might consider to start tapering in December already*.
The Recovery Act allowed the Fed to increase their monthly budget to USD 85 billion, so it could buy more mortgage backed securities and low interest rate treasury bonds to help stabilize the economic climate. There is increasing speculation that the Fed no longer needs to continue spending at its current rate and should begin tapering the monthly budget. The Federal Reserve's current Chairman, Ben Bernanke, is reaching the end of his tenure, so many experts believe it is a good time to start tapering the stimulus package budget. However, there is concern that if the tapering is too abrupt, it may actually hurt the economy more than it helps it. 
Most of market participants believe tapering to start in March 2014, but an earlier start cannot be ruled out either. Any decrease in the money printing would strengthen the USD and be bearish for the EUR/USD.
After a steep increase since mid-November the EUR/USD reached the last local high near 1.3832. From here it turned back down. The increase happened in a very short time, the rate went far away from the 20 and 30 DMAs at 1.361 and 1.356, respectively. A retest of these levels cannot be ruled out. 
If you are considering to open a short position, you could open it at the market price right now with a stop-loss at the local high of 1.3832 and a first target at 1.3522. If you don't want to take this risk, you can chose 1.361 as your first target and roll it, if market movement supports the bearish view on the FX rate.

*A decrease in activity by the Federal Reserve (Central Bank). Typically occurs once the economy is in the recovery stage and nearing a peak in the economic cycle. Some of the activities that the Federal Reserve may engage in while tapering include reducing its spending budget or adjusting the current interest rate. Usually only happens when the Fed feels confident about the economy's direction.

Friday, December 13, 2013

EUA Dec13 moving against stock indices

And yes, He did it! Santa really has chosen the carbon market this year. 

While European and US stock indices gave back some of their earlier gains (DAX down 4.4%, S&P 500 -1.75%, DOW -2.22%, Nasdaq -1.55% from the end of November), the December brought some buyers to the carbon market. Before the Parliament plenary vote on Tuesday, 10 December, the price left the upper edge of the declining trend channel (red line on the chart). For two days it even traded outside the Bollinger bands and reached a 1-month high at 5.03 euro, but became overbought (RSI at 70.00) and we could see a correction on Wednesday, when the EUA Dec13 turned back below the upper Bollinger band. The positive momentum however is still valid, as the price didn’t return into the declining trend channel. 

4.70 euro seems to be a strong support at the moment. The price didn't go lower in the correction after the plenary vote even though the Climate Change Committee (CCC) seems to support the smoothest version of back-loading implementation.

The local high at 5.03 euro is a resistance for future price development. Further a local high at 5.51 euro from October.

All in all, price seems to consolidate between 4.70 and 5.04 euro. Please, keep in mind however that with the holiday season approaching volumes are decreasing day by day. After almost 30 million EUAs traded on Monday today we hardly reached 12,000 lots until the time of writing. On sleepy days like these it's easy to swing out from the above range with small orders.

Friday, December 6, 2013

EUA Dec13: Santa to rally on carbon slopes this year?

The EUA Dec13 remained in the declining trend channel last week. The first attempt to break out on Monday was short lived, but the price touched the upper end of the channel at 4.73 euro on Friday. With this movement it even went higher than the upper Bollinger band at 4.70 euro. The movement was not sustained in the afternoon and the price returned into the trend channel and between the Bollinger bands. 

The question is, if the plenary on December 10 provides enough momentum to break these levels. In a positive scenario the price can rise until 5.04 euro. The next resistance levels are at 5.51 and 5.94 euro. 

It is also possible that market takes the positive outcome of the vote to be already priced in. In this case the price can be supported by the 4.27 euro level.

Monday, December 2, 2013

EUA Dec13: The calm before the storm?

The EUA Dec13 continued in its declining trend channel last week without bigger movements. 

Monday's EU and Polish auctions cleared near market levels. On Tuesday, the market tested the resistance level at EUR 4.50 which stopped further appreciation. Wednesday offered two "positive" factors that halted further price depreciation: (1) there was no government auction on that day, (2) Germany's coalition negotiations ended in a deal forming a government which would support back-loading (although not final cancellation of those allowances held back). Thursday and Friday saw a very calm trading as many market participants showed solidarity with US markets celebrating Thanksgiving and stayed away from trading.

Today's trading started in a sleepy Monday mood until the spokeswoman of the European Council announced to scrap planned vote and to approve whatever would be decided by the Parliament on 10 December. On the news price sky rocketed immediately from EUR 4.45 to a local high of EUR 4.73, a level not seen since 13 November. The euphoria, however, was short lived and half an hour after the announcement the price returned below EUR 4.60 again.

Today's upswing was not even enough to reach the upside of the trend channel, but MACD crossed the signal line. Further positive sentiment regarding back-loading could help the price to reach resistance levels at EUR 4.75 (upper side of the trend channel) and EUR 5.00.

In the lack of additional news about back-loading (or in the case of further NIMs / derogation plans to be approved by the Commission) the price might hesitate between EUR 4.62 (30DMA) and EUR 4.37 (200DMA).

Friday, November 15, 2013

Looking for direction

Carbon price has change a little since the beginning of the week. There wasnt too much of action and it seemed that day traders dominated the place. Narrow daily range of prices (10 eurocents), lack of direction - doji candles, relatively strong resistance from 100, 20 and 30 DMAs (4.70, 4.72 and 4.79 respectively) kept most of the buyers away. Many are looking towards any signs of first sales from NER300 programme by the EIB, to determine their short-term future behaviour.

Market seems to have support @ 4.40-4.50. 4.40 is now the 200 DMA and 4.50 seems like psychology of the market.

Additionally it cannot go unnoticed that recently every upward correction failed to break above the level of its downward counterpart – compare with chart.

Friday, November 8, 2013

YES to a start of a trilogue

Headlines read:

“EU diplomats on Friday agreed to begin talks on a legal text to remove some of the surplus permits from the EU Emissions Trading Scheme.”
“EU Nations Said to Approve Mandate for Carbon-Fix Negotiations”
“EU Council approves CO2 #backloading proposals”

But what actually happened and what are the direct and indirect effects?

First things first, no one approved the backloading. The vote was merely to give a mandate to the Lithuanian Presidency (of the EU) to enter into trilogue negotiations, where it will defend the informal Council position on backloading.

In practice the Council Presidency would go into trilogue negotiations only if it had the guarantee they are supported by a qualified majority of Member States – a confirmation of which they received in todays vote. The text agreed during the trilogue will need to be formally approved by both institutions (and a QMV will be needed for that vote). This is why a YES in today’s vote was needed.

The negotiated text during the trilogue meeting(s) could then be adopted:

  • in the European Parliament's Environment Committee the week starting 25 November
  • in the European Parliament's plenary the week starting 9 December. 
  • in Council during the Environment Council on 13 December or during the European Council on 19/20 December

Clearly the market behaviour was to some people’s disappointment but also certain people took it with no surprise.

  1. The vote was not on backloading itself – we cleared a small hurdle of getting the informal support for the measure, but as you see from the points above – it is not yet a done deal,
  2. A YES vote restored certain confidence from the market in the EU actually stepping up to the challenge and pushing the backloading thru,
  3. The market still awaits official position of Germany and Spain,
  4. Despite the measure going through, backloading alone will not do anything for the ETS - it is not THE FIX. We believe the market would expect further flexible supply mechanisms being proposed, debated (implemented?),
  5. We have upcoming European Parliament elections outcome of which could change the support for EU ETS, plus on-going economic recessions influencing  every market,

Having all the above in mind, we believe the price can be in a range of 3.50 – 6.00 euro in the mid-term. Now this does not sounds like a buy/hold/sell recommendation one may see in the stock market, but think about it. Market is in mid 4.50-4.70. Taking the emotions aside the risk / return of buying vs doing nothing is almost balanced. Now add the emotions to it (this market has it a lot), + your potential budget constraints regarding the price at which you need to buy carbon, + the value of possible savings to the budget vs. the burden to the business in case the budget is blown = a recommendation Buy carbon now (partially perhaps) or Wait.

Tuesday, October 29, 2013

At the mercy of politicians

Politicians and political talks, statements seem to be the main driving force of carbon in the most recent days and weeks. Each statement kicks the price higher, while fundamentals stand behind the gradual corrections.

Despite the price jumping to 5.40 on the 16 October, the market couldn’t keep up the bullish momentum. Similar situation happened last Friday.

This week we see a tight trading range. Carbon price seems to be a captive of 100 DMA giving the support around 4.70 now and short term 20, 30 DMAs providing the cap around 5.00 euros. Market stays nervous until 8 November when the Lithuanian Presidency asks each Member State for a mandate to enter into trialogue negotiations over the backloading proposal.

Thursday, October 17, 2013

Three White Soldiers bullish reversal ?

'Three White Soldiers'
"A bullish candlestick pattern that is used to predict the reversal of the current downtrend. This pattern consists of three consecutive long-bodied candlesticks that have closed higher than the previous day, with each session's open occurring within the body of the previous candle. These long-bodied candlesticks are a sign of the change in investor sentiment and are used by traders to confirm a shift in momentum. This pattern may form after a period of consolidation, which is still a valid sign of a move higher, but it is not as desirable as it would be if it were found at the end of a prolonged downtrend."

At the close of yesterday's trading session we could observe a Three White Soldiers pattern emerging - please compare with the chart. Perhaps it is not as perfect as the books say, nevertheless there can be something in it.

The carbon rally was triggered - yet again - by political comments from Mrs Merkel saying that Europe needs "a certain degree of back-loading for EUAs". While weekly auctions might slightly dampen the bullish undertone, the market is still very nervous to any rise in prices. Take the EIB news, which had some impact, compare this to Angela Merkel's 'comments', that caused a spike in prices, the former had substance the latter was political speak in action.

The chart above also contains Fibonacci retracement levels. One could observe that 4.60 - 38.20 retracement level and a 100 DMA was a strong support. The price barely touched the highs of August, when it retraced down at the beginning of October. We could probably see 20, 30 and 50 DMAs (5.14, 5.23, 4.93) acting as supports while the market tests this week bullish reversal.

Wednesday, October 9, 2013

Looking beyond the EIB announcement

Yesterday evening shortly after market close the EIB announced it would start selling the remaining 100m EUA out of the NER300 reserve. News of the pending EIB NER300 announcement had already caused prices to slip below 5.00 EURO
At the time of writing we find ourselves trading at 4.77, the first significant dip below 5.00 since 5 September. Currently carbon market seems to find a support at 4.70 - 4.75 euro – the biggest question is whether this support is technical or psychological.


1. If we look at Fibonacci retracement, taking the low of mid-April and high of mid-September, we could find support around 4.60

2. If we look at the retracement of the most recent upward move, we find a support at around 4.77

3. We have 100 DMA at 4.52, 200 DMA at 4.46


1. The US may actually soon find a common ground on the budget, and market commentators feel the USD could strengthen having an effect on the EU energy complex, favouring gas over USD priced coal and thus trimming EUA demand.
2. The long awaited allocations should be arriving at installation accounts any day now, providing additional supply.


1. It appears many installations were caught by the move above 5 euro and may consider the risk of carbon falling further vs missing the opportunity to hedge below 5.00 euro as favouring the latter.
2. Secondly, the market should have priced in the sale of 100m EUA already – when the sale of NER300 was originally announced in early 2011. In reality the only missing piece of information was the timing of the sale. We now know the sale will be over 5 months counting from mid-November. This gives us approx. +1m EUA daily to the volume we expected in the mid-term future.

Conclusion: There are many contradictory points however this commentator feels that the bears may have a little longer to play and carbon price may still drift lower in the short term; in the longer term I feel we could see prices above 5 euro.

Tuesday, October 1, 2013

Testing the supports

Failing to break above 5.57, carbon prices retreated and moved in the channel as indicated earlier – compare please with previous post. Late last night market took a deep dive, following declines in power, oil and gas prices. In addition to that, an announcement that German government may not be formed until January next year, may have cooled down the hopes for quick move on backloading. Certain profit taking at the end of the quarter could have played its part as well.

We saw some further weakness this morning, with prices falling under 5.00 euro for a blink of an eye. We may see some psychology influencing the trading today again, as 5.00 euro may be an appealing level for utilities to buy. Market seem to be testing 5.15 for a support or resistance. We have 30 DMA (Daily Moving Average) at 5.05 providing some ground. Next support potentially at 4.90.

Thursday, September 26, 2013

Range-bound market

For nearly a week carbon is locked in a fair range of 5.30-5.55 euro. Intraday chart could point to a formation of a small downtrend.

However, most recent behavior, support at 5.35, can potentially give small kick to the price as we seem to have a double bottom here. As a confirmation, we need to see the price breaking above 5.52 and 5.57. Having said all that, market possibly will move in a range. Lacking other price drivers, carbon could well follow any move in German Power.

Thursday, September 19, 2013

Fibonacci and psychology overturn the market

The other day, one market analyst tells me that 5.96 is a strong resistance as it is significant Fibonacci level. I ask him for his chart ... and indeed it was. You just need to really zoom out and look at the downtrend that started back in November 2012. On the other hand, 6.00 is a strong psychological level to break - so you can see how technical and psychological analysis can set the market to your advantage. For us more important now should be the level of 5.14 - also a Fibonacci level - and 4.90 - the recent heights.

Recently have I written about the Shooting Star formation and the probable market (chart) behaviour, once this pattern emerges. I would like to highlight (please compare with circled patterns in the chart below) few examples from not so distant past, where the Shooting Star signaled a change of trend.

Does this all mean we are under a strong influence of 3 bearish factors? Is this the right time to sell? You don't climb a mountain the same way you run a 100m sprint; you need to take pauses on your way to the top.

Tuesday, September 17, 2013

Bullish break out from a range

Last week we saw some fireworks in carbon, when the price was pushed up to 5.85 on short squeeze. The volume on that last push wasn't amazing and we saw nearly an instant drop down to mid 5.40s.

This week we started with double primary EUA auctions which were absorbed (surprisingly?) well. We saw certain consolidation on the market and expected it to move in a range of 5.40 - 5.60 with any risk to the upside. We never actually settled under 5.40 and any visits below that level were short lived. Two days of a range bound moves also allowed for the RSI to come down a bit from the overbought territory.

With a second look at the 15 min chart - please see the last chart above - you may actually find a small trend building up, that resulted in tonight's rally towards the close. In this bullish tone we can see the market pushing higher ahead of German elections over the weekend.

Thursday, September 12, 2013

Wednesday recovery and Inverse Head and Shoulders opens market for further gains

Wednesday market behavior was a very interesting one, and to make my point at the beginning, it wasn't bearish at all. We had a slippage down under 5.00 euro which many (of you?) took as a sell signal - but no new low was reached, it picked up few cents away from 4.90. You might have been stopped out on your long position, but going short in my view was too aggressive.

We had a wonderful recovery on Wednesday to finish in high 5.20s, few days ahead of increased auction volume. That was a first long entry signal. This created a very interesting chart pattern - Inverse Head and Shoulders, which usually opens the market for further gains.

Second entry for going long - building up your long position - was when we broke 5.40 and break out above 5.48 could have been the third before the market rocketed on stop loss orders.

Monday, September 9, 2013

Market undecided, Doji pattern

After the sharp gains in the last 3 days, market is now at the crossroads. We see a Doji pattern - long shadows and small body of a candle - which indicates the market (market players) hesitates over the direction. Shall we still push higher or brace ourselves for a (sharp?) correction? One could only expect that after rather exhausting bull run there comes a time for a rest.

What caused today pause in the run? Some say it was due to a relatively poor result of an auction, few cents under the market and relatively low bid-to-offer cover ratio. However, think this, at the time of auction clearing, some +6m EUA were traded already, whereas in the past (especially in August), the auction usually was the start of the trading on a day. You can only imagine that once the buyers chased up the market to 5.56, the demand in auction was somewhat limited.

It is crucial to understand, that Doji doesn't mean a reversal or an end to a trend. It just shows indecision. Doji is a rather strong sign that the trend is losing steam, so it is advised that any remaining open positions (in line with the trend) should be closed or limited in size. In the end, the market may, very well, continue to follow the trend - to go higher in our case, as the chart is still bullish. Place your bets.

Thursday, September 5, 2013

Carbon rallies to 5.00 euro on technical support / fundamentals change

Bottoming nicely out from 4.40, market started to climb on Wednesday afternoon, following the increase in power markets across Europe.

Closing the gap - as shown in the circle - provided the incentive for aggressive buying, which resulted in the rally being continued today, breaking most of the resistance levels there were (4.54, 4.64 - recent consolidation and 200 DMA - rather crucial level).

Bears closing their shorts helped to push the market higher and higher; we parked for a while @ around 4.74, before eventually topping around 5.00 euro. Volatility was good and finally we had a much wider trading range, compared to 10c during August, which may attract further attention of daily traders.

On the bearish side of the things; we have 4h RSI @ 80.72 ! and daily RSI @ 71.82 ! a Sign of an overdone buying spree. However, one or two days of consolidation between 4.75 and 5.00 can cool the RSI down a bit.

We also got to know final cross sectoral reduction factor for Phase 3 of the EU ETS and that the physical allocation should happen within 1 to 3 months. Additional 66m of 2013 allowances will be auctioned during the course of 2014.

All in all, I think we are up for another volatile day - if not a week - and i would expect gap on opening and chasing the market up again. Perhaps one could consider closing your long position on the rally.

Tuesday, September 3, 2013

Carbon price dives

After topping at 4.70 and stabilizing around 4.60 for 2 sessions, carbon prices dived touching 4.41 this morning.

The downward movement can be partially attributed to a technical correction. Market looks for support around 4.40 where 20, 30 and 50 day MA could eventually meet; now standing @ 4.45, 4.42 and 4.34 respectively). 4.40 - 4.45 euro can prove as a support, as it did back in late August; it is also 61.80 Fibonacci retracement level.
On the other hand, fundamental change in supply of EUA - namely, EU auction volume back to pre-summer levels + Poland adding some 3.6m units every week until mid December - could have bearish impact on the market, with traders making "extra room in their warehouses" to absorb any additional supply.

Despite the fact, the chart still looks bullish (no new local low), I believe failing to close above 4.40 could drive the price further down. Perhaps purchase @ around 4.40 with cautious stop loss could be a new trade opportunity here.

Wednesday, August 28, 2013

Is it a Shooting Star already ?

A fantastic pull back yesterday from 4.40, gave the market the impetus to go even higher, eventually breaking 4.50 and having a great closing in mid 4.50s, following some last minute buying and short covering. This morning, certain Stop Loss orders kicked prices up to 4.72 - up to the level of 200 MA (Moving Average), where it cooled down and pretty much immediately reversed to mid and low 4.60s - where it found the support for now.

However, looking at the large picture (larger time frame, here is Daily), we see a "Shooting Star" or an "Inverted Hammer" patterns that may (but does not have to) mark the end of the bullish trend (in short or long term) and the start of a correction / bearish trend.

It is only a mid-day here (at the time or writing), and may be too early to judge, but if you consider going long, perhaps this is not the best moment (please compare a "Hanging Man" pattern 15 candles earlier and the market reaction afterwards) to do so for speculative reasons. If you are already long, closing here for Profit Taking or tightening your Stop Loss could be a better idea.

Monday, August 26, 2013

4.30 stands the test

Continued support @ 4.30 - shown in large screen bids - combined with temporarily lower auction volumes - helped last week to push the price above 4.50, for the first time in 2 weeks. However, it didn't take long to see the market correction down to mid 4.40s (previously I marked 4.45 as possible resistance on the way up) where it seems to have stabilized (I say "seems" because due to UK bank holidays, the thin volumes are not the best indicator of the market condition).

Today the market moved in 4.40-4.50 range, with significant support @ 4.40 and reasonable volume on bids around 4.45 - testing the support after falling back from 4.50s. Interestingly enough, previous 4.30 support and today's strength above 4.40 fits nearly perfectly into Fibonacci retracement pattern - see chart above. Closing above 4.40 is still a bullish signal.

Thursday, August 15, 2013

EUA price upward march faces resistance

EUA price moves steadily up, creating a trend that started early in July from 4.05 euro level. Most of the days in July and August witnessed very low volatility of approx. 10eurocents a day, creating little incentives for daily traders, which, to some extent, may have affected liquidity. Most recent attempt to break above 4.60 has failed for now, but reasonably strong support at around 4.30 indicates that bulls have not yet given up. We have several moving averages around those levels: MA20 ~ 4.35, MA30 ~ 4.28 and MA50 ~ 4.32 all giving support. RSI around 50 is in neutral territory.

In short term traders may be seeing 4.45 as possible resistance and only breaking this level can pave the way for further gains.

Friday, May 31, 2013

EUA Dec13: MACD climbed into positive territory first time since EP vote

After trading in a range of EUR 3-4 for almost a month, the EUA Dec13 shortly visited today levels above EUR 4. The MACD climbed into positive territory for the first time since April 16, the day when the European Parliament rejected back-loading.

The price appreciation started last Thursday and after a short correction this Monday it continued until now. The EUR 4 level has been tested May 6 already, but that time the price couldn't break it. Today the price hit a daily high at EUR 4.08, but couldn't maintain its gains and pulled back to EUR 3.92 in the afternoon. It is also a 61.8% Fibonacci retracement level.

The EUA Dec13 appreciated 27.5% since last Thursday from its local low at EUR 3.20. Although the RSI at 57.4 is far from overbought territory, the rally of the recent days might be a little bit overdone. Retesting the former resistance level at EUR 3.85 is therefore very likely.

Optimism (speculation?) about the ENVI supporting the back-loading on June 19 on the other hand might attract more buyers. If the price breaks the EUR 4 level definitely, the EUA Dec13 could find its next resistance at EUR 5. It fell from this level on the rejection of the back-loading by the Parliament plenary.

Wednesday, May 22, 2013

EUA Dec13 broke out downwards

With prices moving sideways in the last 4-5 days, the 20- and 30-days moving averages came closer to each other and are now at almost the same level (EUR 3.44 and EUR 3.46, respectively).
The EUA Dec13 closed three times above the 30-days moving average, but couldn't brake over EUR 4.00.

Despite a relatively strong result of today's UK auction (clearing price some 3 cents above the best bid and bid to cover ratio at highest in the last three months) the price couldn't resist the temptation of the deep and plummeted to a daily low of EUR 3.30 breaking the support level at EUR 3.45.

Besides technical trading there was only one article about the European Council discussing 2030 climate goals in March 2014. The delayed decision might have suggested to market participants that politicians are divided on climate topics which is not the best sign for back-loading to be voted about this summer.

With today's movement the price broke also the trend line that started April 17 at EUR 2.46 and linked that minimum to the local low at EUR 2.86 from May 1. The way is open now to these levels that will work as support.

The first resistance level is at EUR 4.00.

Tuesday, May 14, 2013

EUA Dec13: Captive of the moving averages

The little pattern we observed the last days seems to work perfectly. The EUA Dec13 is moving between the 20-days and 30-days moving averages. Today's low was EUR 3.28, just 2 cents above the 20-days moving average.

This level proved a strong support level until now, but was tested five times already.

Technical analysts say the more a level gets tested the weaker it becomes. We would be therefore careful with opening new long positions and strongly suggest putting a stop-loss.

If the 20-days moving average as support level breaks, the price might fall to EUR 3.

Monday, May 13, 2013

EUA Dec13: Oscillating between two moving averages

As we wrote in our last blog entry the EUA Dec13 has found support at the 20-day moving average and a resistance at the 30-day moving average.
This pattern was confirmed by the recent days' trading and can be used to open speculative positions with a narrow stop-loss.

Thursday, May 9, 2013

EUA Dec13: The German Chancellor widened the trading range

Carbon traded without major excitement between the EUR 2.46 and EUR 3.53 Fibonacci retracement levels until last Friday, when the German Chancellor Angela Merkel used a church event to make her opinion about EU ETS public. As a reaction the EUA Dec13 jumped more than 22% within a day from EUR 3.09 to EUR 3.78 and went above the 20-day moving average at EUR 3.58.

Since then the price trades between the 20- and 30-day moving averages. Latter stopped the EUA Dec13 from increasing on Monday and on Tuesday. The first one halted a decline yesterday and today.

Resistance levels can be found at EUR 3.87 (30DMA, Fibonacci retracement level), EUR 4.20 (Fibonacci retreacement level), EUR 4.50 (former local low) and EUR 5. For another significant price increase, however, we would need important news (or considered by the market as such) like that from the German Chancellor. At the moment the likelihood for this to happen is very low.

The first support level is the 20DMA (tested already twice), the EUR 3.12 Fibonacci retracement level and the historical low at EUR 2.46.

Without news giving the price major boost, the most likely scenario is that the price moves in a range of EUR 3.00-4.00 in the coming days.

Friday, April 26, 2013

EUA Dec13: Boring chart despite looming compliance deadline

Since the European Parliament rejected the backloading proposal the EUA Dec13 is trading in an EUR 1 range between EUR 2.50-3.50. The doji candle on the day before the vote sent the already a negative signal that was strengthened by the huge black candle formed on April 16. On the same day the MACD slipped into negative territory.

The bearish technical picture got another boost yesterday when the 20-day moving average crossed the 30-day moving average from above.

On a market moving just sideways the best trading strategy one can suggest is buying at the bottom of the range (EUR 2.50) and selling at the top (EUR 3.50).

A cancelled auction or a new tweet about backloading can force the price out of the range. Major losses can be limited by setting stop-losses.

Tuesday, April 16, 2013

EUA Dec13 hit new historical low on back-loading rejection by Parliament

As we said in our last entry, the increasing trend channel broke last week and it got its final head-shot today.
After falling to EUR 4.26 last week on EPP member Korhola’s tweets, the price tested the resistance level at EUR 5.00, but couldn’t break above. Today the EUA Dec13 opened at EUR 4.79 and there were some late speculators hoping for a positive outcome and pushing price up to EUR 4.95. The EUR 5.00 was not broken today either which was a negative sign already. Shortly before the vote the price fell from EUR 4.60 to EUR 3.76, as people closed speculative long positions and hit stop-loss levels.
The negative vote after noon time sent the price to a new historical low at EUR 2.63 to recover slightly later in the afternoon. (The former historical low was reached January 24 when ITRE rejected the back-loading at EUR 2.81.)

The picture looks bearish.  The ETS is still alive, meaning that installations have their compliance obligations. This can support prices at the current levels for the time being, but there is a significant downside risk after the compliance deadline of April 30. Without new announcements from the Commission on a back-loading alternative, the price can easily plummet to new historical lows again. Based on options traded today, some market participants calculate with a carbon price of EUR 2.00.
In the case the rapporteur comes up with a new text in the coming two months, speculation might start again and help the EUA Dec13 to recover. The price however has to face couple of resistances above EUR 4.00. There are local lows waiting at EUR 4.26, the 30-days moving average is at EUR 4.35, its 20-days peer at EUR 4.56.
And finally the EUR 5.00 appears in an unattainable distance…

Tuesday, April 9, 2013

EUA Dec13: Another speculative wave before the plenary vote about back-loading?

After finding a nice support level near EUR 3.50 in March (76.4% Fibonacci retracement level calculated based on the historical low January 24 and the local high since then February 18), the EUA Dec13 started to trade in a climbing trend channel.  (See chart) The MACD signaled the start of the increasing trend on March 21, when the MACD crossed the signal curve. Yesterday the 20-days moving average came close to the 30-days moving average. It is generally a bullish signal, if the first one crosses the second one from below.

Today, however this bullish signal got in danger, as the price plummeted from EUR 5.03 to EUR 4.66 after news reported that the majority of the biggest group of the European Parliament (EP) rejects the amendment of the ETS Directive. The EP plenary vote on April 18 can clear the way before the back-loading or make it politically dead.  The price fell from the trend channel and couldn't climb back above EUR 5.00 until the time of writing. (15:11 CEST)

The price movement of the last couple of weeks and of today shows very well that the most important factor influencing the price of carbon is the political decision about back-loading (and the expectations related to it). The closer the date of the vote, the higher the volatility of the price might be.

The upside is expected to be limited as
a. There is a huge uncertainty regarding the outcome of the EP plenary vote.
b. The positive outcome, on the other side, is mainly priced in at these levels already.

The first resistance level is at EUR 5.27, a local high hit yesterday followed by EUR 5.52 last seen before the ENVI vote in February.

The first support level is at EUR 4.88. This is the 23.6% Fibonacci retracement level and the price is here at the time of writing. The 38.2% Fibonacci retracement level is at EUR 4.48 very close to the EUR 4.41 level where the 20- and 30-days moving averages are waiting for a direction.

Tuesday, March 12, 2013

EUA Dec13: No recovery in sight before German decision on back-loading?

It might seem that the EUA Dec13 had a boring day on Friday, but there is (at least) one negative item its performance. It hit a daily low of EUR 4.13, a level last seen Feb. 19. This was the day of the ENVI vote, when MEPs delayed a decision about putting the process of back-loading on fast track because of uncertainty regarding a possible consensus. The last candle on the 10 minutes chart isn't encouraging either. The price closed at the lowest end of the candle indicating that it is not strong enough to recover before the weekend. The range the price traded narrowed to EUR 4.13-4.50 in the last three trading days of last week. The daily candles draw a narrowing triangle and forecast further downwards movement.

On Monday, the EUA Dec13 had a critical day. It opened in a negative mood touching EUR 4.10 in the first 10 minutes of trading compared to Friday's closing price of EUR 4.26. The fall speeded up after the announcement of the EU auction (clearing price was 4 cents below the best bid in the secondary market and bid-to-cover ratio fell below 3). The price fell below EUR 4.00 and hit a daily low of EUR 3.93, a level not seen since Feb. 1.

MACD gave sell sign on March 5. RSI is at 37.2, close to oversold territory. The price approached the lower Bollinger band at EUR 3.60 recently.

The next support level is at EUR 3.85 (a Fibonacci retracement level), followed by the lower Bollinger band, the next Fibonacci retracement level at EUR 3.45 and by EUR 3.22 a local low from . 

Resistance levels are at EUR 4.05 (more a psychological level as the price fell through this level quite easily), EUR 4.30 and EUR 4.52 (30-days moving average). 

Friday, February 22, 2013

EUA Dec13: Uncertainty limits upside potential

The EUA Dec13 had an extraordinary rally on Thursday. The start was uncertain and the price fell to a daily low of EUR 4.78 (30-days moving average) that proved as support. From here the price advanced to a daily high of EUR 5.41 and closed at EUR 5.30. Short term technical indicators gave a sell signal by the end of the day.

The rally started on Feb. 19, when the Environment Committee (ENVI) of the European Parliament backed the amendment of the ETS Directive that would authorize the European Commission to intervene in the timetable of the EUA auctions. (A cold snap also helped from the background.)

The Committee however delayed a decision about giving a mandate to its chairman to initiate trilogue discussions that would put the legal process on a fast track.

At the time of writing we still don’t know if the ENVI chairman, Matthias Groote would ask his Committee again for the mandate on their next meeting on Feb. 26. If he doesn’t do so, the opinion of the ENVI goes directly to the plenary of the Parliament for first reading on Apr. 15. In this case there will be no pressure on Germany to come up with a definite opinion on back-loading any time soon. The uncertainty remains in the market and price will be news-driven.

It is very likely that he would ask for the mandate only if he sees a high probability of getting it. In this case there will be a vote next Tuesday and there will be a reason to close the long positions opened in a hope for a positive outcome.

If he asks for the mandate and doesn’t get it, this will be another good reason to close long positions opened this week and take the profit.

All in all, we see limited upside potential for the EUA Dec13. The MACD got closer to the zero line, but is still in the negative territory. The Relative Strength Index (RSI) is in the neutral territory, at 52.4. The next resistance level is at EUR 5.52 (a daily high from Feb. 18) followed by EUR 6.00. Support levels are at EUR 4.80 (30-days moving average, that stopped the price from falling further 15 minutes age when Germany announced that it failed to sell 4.02mn EUAs on auction), EUR 4.56 (20-days moving average) and EUR 4.09 (the daily low from Feb. 19).

Wednesday, February 6, 2013

EUA Dec13: Deflating the ballon

The EUA Dec13 couldn't maintain its recent gains. Last Friday the price jumped almost 30% within the day on the speech of the German Chancellor Angela Merkel at a conference as she supported her environment minister's renewable energy reforms. Mr. Altmeier is known for supporting the backloading. Friday's price movement might have triggered market participants that had a short position from January to close their positions. In addition to this, there were two days (Monday and Tuesday) with excellent auction results that might have helped as well.

On Wednesday the EUA Dec13 opened in a positive mood and reached  a daily high of EUR 4.76 ( a level not seen since Jan. 24), but gave up gains in the afternoon to close at EUR 4.16, 26 cents lower than Tuesday's closing price and 1 cent higher than the daily low.

The MACD still keeps its bullish crossover. RSI is in the neutral territory at 36.7.

It seems that the price tested the higher range of the declining trend channel, but it didn't break it and now it's coming back to the lower end. Support levels are at EUR 4.00, EUR 3.22 and EUR 2.81. The closest resistance is Wednesday's high at EUR 4.76.

Thursday, January 31, 2013

EUA Dec13: Falling knife

The picture didn't change at all. Although it was oversold already the negative outcome of the ITRE vote on the 24th of January pushed the price to a historical low of EUR 2.81. The movement was overdone even according to the most pessimistic market participants. It recovered, but the main, declining trend is valid. The price just stops here and there to take a breath and continue its slope downwards.
The MACD is deep in the negative territory with the RSI at 21.5 (values below 30 signal an oversold market). The price seems to be pegged to the lower Bollinger band.

With the price in unexplored territory it is difficult to identify support levels, but the EUR 2.81 all-time low is waiting to be retested. Although the price didn't react to technical indicators recently, just dived, the possibility of a correction cannot be excluded. The closest resistance levels are at EUR 3.84 and EUR 4.11.

Wednesday, January 16, 2013

EUA Dec13: In free fall

Since the 9th of January the EUA Dec13 not only continued its path in a decreasing trend channel, but also hit new all-time lows every day. The latest one was reached today in the afternoon at EUR 5.71. 
There are several reasons behind this price “performance”:
  • EU ETS oversupplied: According to documents from the European Commission, by early 2012 the surplus had reached 955 million allowances and a continued rapid build-up is expected over the rest of 2012 and in 2013 due largely to a number of temporary factors directly related to the transition to phase three (2013-2020). This means that by the start of phase three the surplus could be well over 1.5 billion allowances or even up to 2 billion. 
  • Auctions almost every day: EEX as the transitional common auctioning platform for the EU and ICE that one chosen by the UK hold auctions almost every day. The amount of 15-18mn Phase 3 spot EUAs offered at these auctions will be completed by additional Phase 2 auctions. (Germany announced beginning of January 2013 that it had to decide about the EUAs that remained from its New Entrants’ Reserve.)
  • Political uncertainty: The European Commission suggested a short-term fix to remedy plummeting prices: the back-loading. If successfully implemented, the back-loading could push prices to EUR 13-14 levels. Before, however, the ETS Directive has to be amended in a way that it recognizes the power of the European Commission to modify the Auctioning Regulation. The European Commission said end of last year that they would wait for the Parliament and Council to amend the Directive. This suggests that the legal procedure might take long even in the case of a consensus among member states. Poland, however, is opposing any changes to be made to the Directive and the Auctioning Regulation. Germany, on the other hand, is split internally as the environment ministry couldn't convince the economy ministry that is worried about high electricity prices harming the competitiveness of the industry. Fears that there would be no back-loading in 2013 are getting stronger.
  • Glut of Kyoto credits: AS mentioned by the European Commission in its “The state of the European carbon market in 2012” report the situation is worsened by the increased supply and usage of CERs and ERUs. An international credit that is used for compliance frees up one allowance that does not need to be used for compliance. As such the use of international credits for compliance increases the surplus of allowances available to the market. This trend was sped up at the end of Phase 2 given that certain type of credits cannot be used for compliance from Phase 3 onward.

In addition to these there is still a chance that the free allocation happens by the beginning of March that – although part of a normal market functioning – is an additional supply for the market.

The price reaction was of course negative. The 20 DMA went below its 30DMA peer, forming a crossover that is considered as a bearish sign. The MACD is deep in the negative territory and below the signal line. The RSI is at 32.4, near the oversold territory, but there is still some room for further depreciation. In addition we have every week one or two days with a correction that keeps this indicator above the critical level. 
The question is how to identify support levels for a price being in free fall. (Resistance levels are the former support levels at EUR 5.93, EUR 6.22 and EUR 6.48 for the short term.) In this case the Fibonacci retracement levels might provide some indication about possible support levels. These are at EUR 5.58 and EUR 5.36 at the moment.

Tuesday, January 8, 2013

EUA Dec13: How strong is the bullish engulfing formed the 7th of January?

Traded volumes suggest that market participants are returning to the market from their holidays and technical analysis makes sense again. The EUA Dec13 tested the EUR 7.50 resistance level in December twice, but failed to break through. After the second test the price started a declining trend that lasted for nine days (from the 21st of December 2012 until 4th of January 2013).

The trend was reinforced by the MACD falling below the signal curve on the first trading day of 2013. The 30 days moving average fell below its 20 days peer the next day. The 7th of January, however, the price increased from a daily low of EUR 6.28 (the lower Bollinger band) to EUR 6.68 and closed at EUR 6.66 forming a nice bullish engulfing candle. There were several factors behind this movement:

  • Power prices increased across Europe on lower temperatures. At the same time coal prices declined, making heavily polluting coal more attractive in the eyes of power companies. (U.K. next-month coal power plant profit rises 6.2% to record 24.43 pounds/MWh)
  • The year’s first Phase 3 spot EUA auction cleared at a price 5 cents higher than current market price and the bid-to-cover ratio was higher than in December.
  • The market was mature enough for a correction after nine days of decline.

Unfortunately the traded volume on that day doesn’t seem enough for a trend reversal. The MACD is still in the negative territory. Any price appreciation therefore might be limited. The next resistance levels are the 20 and 30 days moving averages at EUR 6.84 and EUR 6.90, respectively and EUR 7.43 that was tested twice already. In a negative scenario the price might plummet to the all-time low of EUR 5.93, although there is a weak support level at EUR 6.22.