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).