Monday, December 22, 2014

EUA Dec15: Christmas consolidation after rally

The candles from Monday and the Friday before formed a bullish engulfing. In addition the price closed above the 30DMA, for the first time for seven days. The positive momentum persisted until Wednesday when the price hit a new weekly high at 7.19 euro. This level was retested on Friday, but in the last two trading days the price moved in a narrow range of 13 cents. Volume was lower than the December average as most of the traders are preparing for Christmas already.

The 20 and 30DMAs met at the 7.00 euro level this morning.

The MACD crossed the signal line on Friday reinforcing the positive momentum although further gains might be limited by the low interest before the holidays.

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.

Monday, December 8, 2014

EUA Dec14: Increasing trend channel broken

The new German Climate Action Plan and the lack of directional signals from last week's ENVI and ITRE meetings pulled the EUA Dec14 out of the increasing trend channel.

The EUA Dec14 closed the first trading day of the last week with a gain of 3 cent, but it visited the levels below 7 euro during the day after the MACD crossed the signal curve on the Friday before. The report of the International Energy Agency (IEA), however, helped the price in recovering.

On Tuesday, before two key meetings traders opted for closing  long positions and after hitting a daily high at 7.13 euro, the price fell below the 20DMA at 6.91 euro. Thanks to this move the price fell from the increasing trend channel.

On short term (on the 1h chart) the price became oversold, so we expected a correction on Wednesday and exactly this happened. During most of the day the price was captured by the 20 and 30DMAs, a short test of climbing above the 20DMA failed after the German government accepted the new Climate Action Plan which has the aim to reduce CO2 emissions by almost 80 million tonnes by 2020.

The 20 and 30DMAs defined the price movement on Thursday, but on Friday the 30DMA was broken given another bearish sign that the price could fall to 6.50 euro.

The first support level is near 6.50 euro with 6.55 being a Fibonacci retracement level, 6.53 a local low and 6.49 the 50DMA. Carbon options expire this Wednesday on ICE. If sellers of call options with a strike price of 7 euro or higher decide to cash in, there might be a selling pressure on the price.

Any upside might be limited by the 30 and 20DMAs at 6.79 and 6.92 euro, respectively.

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.