Monday, December 15, 2014

EUA Dec14: Option price gravity pulled the price to 1M low

After falling below key support levels the week before, the price remained under pressure last week. The EUA Dec14 moved in a narrow range of 9 cents on Monday as the compromise report of the ITRE rapporteur on MSR didn't contain any major surprises for the market participants. On Tuesday the price tested Monday’s low at 6.58 euro, but by the end of the day buyers helped it recovering. 

Wednesday was the most exciting day as after retesting the 30DMA the price fell below a local low, a Fibonacci retracement level and the 50DMA. Due to option expiry and rolling-over of positions to next year the movement was supported by a significant volume. When an option expires, the market price tends to move in the direction of the strike price of the most actively traded option. EUA options expired yesterday and there was a significant interest in that with a strike price of 6.50 euro. The low hit during the day at 6.45 euro remained a good support level for the rest of the week.

Thursday brought a correction and the price approached the 30DMA, but didn’t reach it. The price took a downward path on Friday and fell to 6.56 euro, but buyers appeared in the afternoon and made the price closed at the same level it finished the previous week.

The price moved in a narrowing triangle since last Wednesday. The question is which direction it takes when breaking out. The MACD gave a bearish signal today when it slipped below the zero line. Further losses can however be limited by the support level at last week's low at 6.45 euro. In the lack of major price moving news (no major announcement about the MSR expected until January, auctions halted from Wednesday) the price might move in a range between 6.45 euro (last week's low) and 6.83 euro (30DMA).

As the Dec14 contract is last traded today, from next week on our levels will change slightly as the Dec15 contract becomes the new benchmark.

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