Monday, December 1, 2014

EUA Dec14: Increasing trend channel in danger?

The EUA Dec14 tested both the resistance level near 7.11 euro and the support level at 7 euro last Monday. The result was a doji candle by the end of the day indicating the hesitation of the market about which direction to take. 

On the next two days however, the benchmark contract managed to hit new local highs reaching a 9 month record at 7.21 euro on Wednesday. At the same time the relative strength index climbed above 70, the signal of overbought prices. 

The losses on the last two days of the week therefore didn’t come as a surprise and the fact that the price closed above 7 euro is a positive sign.

The increasing trend channel is still intact. The price would have to fall to the 20DMA at 6.88 euro to leave the trend channel. The MACD crossed the signal curve which is a bearish signal at the moment.

Market will have an abundant supply of 10.5 million EUAs this week with an auction every day. 

This is worsened by the general negative mood in the market. Brent lost more than 12% last week reflecting the decision of OPEC about not cutting production levels despite record low prices. Markets are expecting a price of 60 dollars, the last price today was 69.07 dollar. The first statistics of the Black Friday sales show that huge discounts were not compensated by volumes. Sales therefore were significantly lower than in 2013 further worsening the investor sentiment.

E.ON announced on Sunday plans of splitting its business. Difficulties the European energy sector faces these days forced the company to form a new unit for power generation, energy trading and upstream businesses. The main focus of the company would be its renewable activities, regulated distribution networks and tailor-made energy efficiency services in the future. The step of Germany's biggest utility is an indication for the future trend and might be an example for other peers. For the carbon market, the step suggests decreasing demand for allowances.

The strongest support level seems to be now the 20DMA at 6.88 euro. The lower edge of the trend channel is also close to this level. Below this level, at 6.80 there is a Fibonacci retracement level, followed by the 30DMA at 6.70 euro. 

The meetings of ENVI and ITRE on Wednesday and Thursday might provide some support to the price like we saw it in November. For this to be the case it would be necessary that MEPs show a strong will to reform the EU ETS.

If the benchmark turned up again, the first resistance it had to overcome would be the 7 euro level. This is followed by last week's high at 7.21 euro. The upper Bollinger band is the next resistance level at 7.32 euro, before the price could retest 2014  high at 7.41 euro.

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