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.

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