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.