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. 

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