Friday, January 10, 2014

EUA Dec14: Time for a correction?

The benchmark carbon contract lost more than 4% w/w. The main reasons I can see behind this week's downward movement are:

- The uncertainty regarding the shortening of the scrutiny period as the start date of the implementation influences the amount of allowances to be back-loaded from 2014 auctions.
- The looming free allocation. Based on the status table updated on Monday it seems that the Commission tries to "speed up" the procedure. (OK. Let's say from snake tempo to turtle tempo.) And we are talking about 2013 allocation that should have happened until end of February last year. But what if the 2014 free allocation happens at due time? 
- This week we had interesting news from the coal market: Colombia withdraw the export license of  Drummond, one of the biggest exporters. This caused the price of coal for next month delivery jumping 2.5% on Wednesday and further 3.6% on Thursday.

The negative trend is unbroken since the end of December. The EUA Dec14 traded today already outside the lower Bollinger band and below the 200DMA at 4.58 euro. The MACD crossed the zero line on Tuesday sending a bearish signal. 

RSI, on the other hand, is at 36.5, very close to the oversold territory that starts from 30 downwards.  Latter might indicate that a correction is near. And the hammer formed today confirms this possibility.

Who knows if there would be a person in Brussels tweeting about (not) shortening of the scrutiny period?

The next resistance level is at 4.75 euro.

But please, don't forget about the updated status table on Monday and the more than 20 million EUAs auctioned. These factors increase the pressure on the price. Support levels are at 4.47 and 4.29 euro.

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