Monday, March 31, 2014

EUA Dec14: The case of the falling knife

The decline anticipated two weeks ago when the 20DMA crossed the 30DMA speeded up last week. In the first three trading days the low from mid-March at 5.66 euro could support the price, but the level got broken on Thursday when Spanish installations received their 2014 free allocation and European power prices reached 2007 levels. The EUA Dec14 plummeted to the 200DMA. The movement was very big in a very short time, and the RSI slipped below 30 indicating oversold price.

This didn’t bother sellers on Friday who pushed the price below the 200DMA, below the 5 euro psychological level and even below 4 euro. The RSI fell to 23 and the price dived below the lower Bollinger band as well. The low touched on Friday (3.71 euro) is at the 76.4% Fibonacci retracement level taking into consideration the historical low from last April and the high reached beginning of March 2014.

For the last seven months the 200DMA proved a good support, but after Friday’s fall it became a resistance level. Before that the 4.45 euro level has to be broken. (The first attempt of today was unsuccessful.)

In a negative scenario the 3.38 euro (the low from July 2013) and the historical low at 2.60 euro are the support levels, if the low hit on Friday (3.71 euro) breaks again.

It is difficult to see any demand in the near future. I suppose that installations are covered for 2013 already. Auctions get less and less bids. The cover ratio that on the last EU auction reached 9, fell today to 3 and the number of bidders also fell from the 18-19 earlier to 13. 

Contrary to earlier assumptions not industrials, but utilities could have appeared on the sellers' side. Those who sold power forward and buy back now due to mild weather and low prices, unwind their hedging positions in the background. Also Polish utilities were informed on Friday that they might receive derogation allowances before the compliance period ends and those who bought in times of uncertainty could have reduced their open positions.

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