Monday, November 24, 2014

EUA Dec14: Setting comfort zone before key events

Last week started with retesting the 20DMA after the report of the MSR rapporteur Ivo Belet contained a starting date of 2021 disappointing those market participants who hoped for an early implementation. By the end of the day, however, the EUA Dec14 managed to hit a new 8-month high. 

A new local high was reached on the following two days as well pulling the relative strength index (RSI) close to overbought territory. Other factor suggesting a correction was the bearish engulfing which was formed on Wednesday and Thursday.

The contract felt comfortable in the 6.86-7.08 range last week. The increasing trend channel is still intact, but if the price tests the 20DMA at 6.71 euro, the trend might be broken. A Fibonacci retracement level is also near here reinforcing the importance of this level.

The upper Bollinger band (now 7.13 euro) worked as a good resistance last week and could limit gains to the upside this week as well. This is followed by local highs at 7.13 and 7.33 euro, before the 2014 high at 7.41 euro is reached.

The deadline for MEPs in the ITRE committee of the European Parliament expires today at noon time. The content of the amendments might make the EUA Dec14 retesting some support or resistance levels. 

The second half of this week might see low volumes as part of the market will be in London at an annual conference of energy traders. Other part of the market might simply take the last two days of due to the celebration of Thanksgiving and the start of Black Friday in the US. On days like these volumes might be low, but if trading books dry out, it could be easier to cause bigger volatility in the market.

Next week will be busy again with Germany deciding about the closure of some hard coal and lignite-fired power plants which might and the ENVI and ITRE discussing the market stability reserve. 

Monday, November 17, 2014

EUA Dec14: End of gains?

Despite gains in German power and fuel prices the EUA Dec-14 contract closed Monday’s session at 6.72 euro, some 0.04 euro lower compared to the previous close, but the increasing trend channel remained unhurt. The benchmark contract then reversed the losses on Tuesday and reached a new seven month high at 6.83 euro. Most of Wednesday’s trading hours were spent with sideways movement, but buyers invaded the trading floor and pulled the price to 6.73. The RSI went above 69 on that day, approaching overbought territory. 

Wednesday's candle, however, looked like a “Hanging Man” candle which usually indicates waning bullish demand. Thursday’s doji candle was other sign about market hesitating which direction to take and the long-awaited correction seemed to have started on Friday. 

Some traders might have closed long positions ahead of the meeting of the European Parliament's Industry Committee (ITRE) where a draft opinion about the market stability reserve will be discussed. Market remembers ITRE's role in the back-loading approval when the first rejection in January 2013 sent down the front year contract below 3 euro. 

The MACD started to approach the signal curve, but didn't cross it yet. The RSI took some distance from the overbought territory. 

The increasing trend channel that started on 3rd October is still unhurt, but the price is close to the lower end of the channel. If it came below 6.60 euro, the channel would be broken. The next support level is at 6.52 euro (the 20DMA). This is also a local high from August when the auction volume was halved. 

Should market interpret the amendments of the ITRE in a positive way, the first resistance level to test is last week's high at 6.86 euro followed by the upper Bollinger band at 6.94 euro. 

Monday, November 10, 2014

EUA Dec14: Nothing can stop the rally?

Interestingly, the EUA Dec14 formed three bullish engulfing forms during the last week providing a strong bullish signal.

On Monday the appreciation was helped by an increased demand from the utilities' side as workers at French utilities went on strike and reduced power generated from nuclear and hydro. The 3.6% d/D jump seemed exaggerated and we saw a correction on Tuesday, but the support level at 6.44 stopped the benchmark contract.

At the stakeholder consultation in the ENVI Committee on Wednesday there seemed to be a broad support for the implementation of the market stability reserve, although participants recognized that the parameters of the measure might change compared to those proposed by the European Commission in January. France for example joined the group of those countries supporting an early implementation of the reform. Also the industry committee of the European Parliament (ITRE) seemed more cooperative than in the past when back-loading was on the table. Its vice chair said that an early implementation is necessary in order to avoid zigzags in the price when back-loaded allowances return to the market. They therefore also support putting the back-loaded allowances directly into the reserve.

The increasing trend seems to be unstoppable. Also the calendar for this week only contains items that might rather support the price instead of pushing it down:

- There will be only four auctions this week with a total volume of 8 million allowances, some 2.5 million less than last week.
- The new Commissioner for Climate Change and Energy will be guest in the ENVI Committee on Tuesday. In his parliamentary hearings before his election he seemed very supportive for the reform of the ETS. If he repeats his commitments, it might have a positive effect on the EUA price.

It is important to mention however, that the relative strength index at 69 shows that the price might be close to overbought territories, and a correction or consolidation might be in the cards.
The price is trading near the upper Bollinger band and also close to the upper edge of the increasing trend channel that formed early-October without any retest.

Should the positive momentum persist, there is no real resistance before the 2014 high at 7.41 euro, only the psychologically important level at 7.00 euro.

In the case of a correction the first support could be the former resistance near 6.44 euro. This support level is followed by the moving averages: 20DMA at 6.37 euro, 30DMA at 6.20 and 200DMA at 5.94 euro.

Monday, November 3, 2014

EUA Dec14: Consolidation after Council conclusions and before ENVI meeting

The positive news about an unanimous agreement in the Council about the 2030 targets pulled the EUA Dec14 to 6.44 euro and the RSI to 67 on 24th October. The price even checke dterritories outside the upper Bollinger band. This made a correction in the first days of last week likely. 

The price fell to 6.27 on Monday and hit a daily low at 6.15 on Tuesday. With latter move the increasing trend channel which started in October seemed broken, but thanks to utility activity the price rallied in the late hours of Wednesday which made us simply widening the trend channel.

Thursday started with breaking the resistance level at 6.44, but the outlook of an agreement between Russia and Ukraine about gas deliveries pushed the price lower in the afternoon and the result was a doji candle indicating hesitation of the traders. 

Friday's black candle seemed to confirm that the price is more likely to stay in its comfort range than breaking to new highs.

We might see further sideways movement in the first half of the week. The relative strength index (RSI) came down to neutral territory (56).

The first support level is at 6.19 euro, the 20DMA. If the price falls below this level, it leaves the increasing trend channel (again). The next support level might be the 30DMA at 6.05 euro followed by the 200DMA at 5.91 euro. In the last two weeks the 50DMA which is now at 6.10 euro proved a good support level.

Wednesday's stakeholder consultation in ENVI about the market stability reserve (MSR) might influence the price in the second half of the week depending on the opinions of the participants. If there seems to be a strong support for the early implementation of the MSR, the benchmark contract might retest the local high reached last week at 6.47 euro and even increase further to the next resistance level at 6.51 euro.

Our base range for the week is 6.19-6.47 euro, while the wider range might extend between 6.05-6.51 euro.