Monday, September 29, 2014

EUA Dec14: Short-term declining trend channel couldn't be broken

The warning signals from the third week of September (the 20DMA crossing the 30DMA and the bearish engulfing of the Friday-Monday candles) proved to be correct. The EUA Dec14 fell below the 200DMA on Tuesday and hit a 3-month low at 5.63 euro after the new rapporteur of the market stability reserve proposal Ivo Belet published the preliminary timeline of the approval process. According to the current plans the ENVI would first vote about the reserve in February 2015.  The date seemed to be later than market participants expected and traders sent the price down sharply. The more than 5% decline was followed by a correction on Wednesday, but gains were capped at 5.82 euro. 
The Director General for Climate Action Jos Delbeke said later during the week he believed the market stability reserve could be law by June-July 2015.  This statement and the outlook of less allowances to be auctioned this week (no UK auction on Wednesday and Friday's German auction has been cancelled due to a national holiday) helped the price in recovering on the last days of the week. 
From the first days of September a short-term declining trend channel forms in the chart. The depreciation accelerated last week and the price fell below the lower Bollinger band. The RSI  touched 32 last week suggesting that there is a chance for a correction. This however does not necessarily mean the reversal of the trend. To break out of the channel the price has to reach 5.95 euro at least and stay above this level which didn't happen until now.
After Friday's appreciation the MACD moved closer to the signal curve, but it wasn't able to cross it and remained in the negative territory. The RSI is in neutral territory (at 42). 
Traders disappointed by the lengthy procedure of the market stability reserve and potential negative comments by the ENVI and ITRE committees about the Climate Action and Energy commissioner designate Miguel Arias Canete might push the price down to the 200DMA at 5.77 euro again. If the moving averages cannot stop the fall, the next support level is last week's low at 5.63 euro. 
The reduced auction volume of this week however might provide support to test the upside. Resistance levels can be found at 6.03 euro (the 20DMA), 6.07 euro (last week's high) and 6.15 euro (30DMA).

Monday, September 22, 2014

EUA Dec14: Politics and auction volumes to define the range for this week

The doji candle on 11th September was followed by a bearish engulfing next day. Also the MACD arrived to the negative territory on that Thursday. So it was no major surprise that the EUA Dec14 slipped quickly below 6 euro last week thanks especially to the narrowing clean-dark spread in German power. The 20DMA crossed the 30DMA on Wednesday giving another sell signal. On the same day however the price reached the 200DMA quickly which proved a good support and turned back the benchmark contract to 6 euro. The round number represents a psychological level and a Fibo level as well (taking 2014 high and low).
Since the beginning of September the price formed a declining trend channel the upper end of which was touched, but not broken on Friday.
This week the ENVI will vote about the objection to the 2015-2019 carbon leakage list which in case of adoption could have a bullish effect on the EUA price. The chances however for the objection to pass the plenary are low as the Green Group's votes won't be enough to get absolute majority.
The five auctions on the other hand (offering a total of 10.5 million EUAs) could exercise a pressure on the price and not let it above the 20 and 30DMAs at 6.18 and 6.23 euro, respectively.
There seems to be still a hope for the market stability reserve to come into force, which might keep the price above the 200DMA (at 5.75 euro at the moment) which is the closest relevant support now.

Source: Bloomberg Finance L.P.

Monday, September 15, 2014

EUA Dec14: MACD slipped into negative territory

As we wrote last Monday the technical picture worsened in the first week of September and things didn’t get any better last week either. The EUA Dec14 fought with the moving averages on Monday, but gave up in the days after and fell even below the critical 6 euro level on Friday to an intra-day low at 5.97 euro (here is the lower Bollinger band now). 
Market participants might have been waiting or comments from the Working Group on environment of the European Council on Monday as the price moved in a narrow range and the volume didn’t reach 10 million until 17:30pm CEST, but politicians told 30 minutes before the market closed that they would need two weeks to draft their positions. The German proposal leaked out later during the week suggesting a 2018 start only, one year later than the country’s position was in summer.
Coal prices in euro terms increased after the European Central Bank rate cut, while gas prices dropped as the EU delayed the implementation of new sanctions after the ceasefire had been signed in Ukraine. These led to the dark spread losing from its advantage relative to the spark spread since the beginning of September. As a consequence the EUA Dec14 got on a downward trend.
On Thursday the MACD slipped into negative territory giving another bearish sign for market participants. The only fact that could give some hope for a correction is that by the end of the day  the EUA Dec14 managed to climb back above 6 euro again. On the other hand, news reported today in the morning that the ceasefire didn't bring any solution and that fights in Ukraine continued during the weekend pushing gas prices up.

The RSI is at 41, so a retest of the 5.97 level cannot be ruled out. 6 and 5.97 are the first support levels followed by a local low at 5.75 from the beginning of August.
To the upside the first resistance is at 6.15 which stopped the price increase twice last week. The 30 and 20DMAs are the next resistance levels at 6.26 and 6.30 euro, respectively.
The price fell from the major increasing trend channel and turned down. In the lack of support the price might retest the 5.75 euro level, while to the upside the 6.15 euro resistance has to be broken first.

Monday, September 8, 2014

EUA Dec14: ECB rate cut pushed down dark spread and carbon

The EUA Dec14 moved in wide range of 19 cents last Monday leaving a long-legged doji by the end of the day. This candle indicates a possible shift in the trend after the carbon price booked a 2.9% increase in August. The next day’s range was narrower (8 cents only) and the price remained above the support levels. On Wednesday the 30DMA at 6.25 euro halted the price, but on Thursday both the 20 and 30DMA were broken and the price hit a daily low at 6.09, a level not seen since 13 August. 
The move came after the ECB surprised markets by announcing a 10 basis points cut in its benchmark rate to 0.05% which caused a sharp fall in the EUR/USD. The weakening of the euro made coal which is traded in US dollar more expensive. Consequently, the dark spread which improved in the last couple of weeks reversed its increasing trend and  dragged the carbon down as well. The EUA Dec14 lost almost 4% on Thursday only. 
The weekly low was reached on Friday at 6.06, but news about Council working group for environment discussing the MSR helped the price in recovering. The 30DMA worked as resistance though. 
The MACD approached the zero line, but the RSI also came down rapidly to 41. The first support level is at 6.00 (a Fibo level, the lower Bollinger band and also psychologically important) followed by the August low at 5.75 euro. The former support levels became resistances at 6.27 (30DMA) and 6.33 (20DMA).

Monday, September 1, 2014

EUA Dec14: Will utility demand be able to counterbalance increased supply?

The EUA Dec14 moved in a relatively narrow range between 6.22 and 6.48 euro last week. Traders were away from markets on Monday which was a banking holiday in the UK. The first candle of the week formed a bearish engulfing with that from the Friday before, but the low volume didn’t support a bearish view. The price tested the 20DMA on Tuesday and the 30DMA on Wednesday. Latter proved a good support and turned the price back upwards. The weekly high was reached on Thursday. On the last day of the week many traders might have opted for taking profit and the price closed down 4c d/d.
The increasing trend seems unhurt, but there are warning signs: (a) the 6.50 level couldn’t be broken last week, (b) RSI is at 60 and (c) the auction volume will double from this week on. The question is if the demand from utilities would be able to counterbalance these hurdles.
The closest support levels are at 6.29 (20DMA), 6.25 (30DMA), 6.22 (last week's low) and 6 euro. To the upside 6.48 is last week's high and 6.51 euro from the week before.
The MACD crossed the signal curve last Monday giving a bearish signal.