Monday, January 26, 2015

EUA Dec15: Weighing the options after the ITRE shock

The EUA Dec15 had a strong start to the week as positive news from the shadows’ meeting in the ITRE committee pulled the price above the resistance level at 7.33 euro on Monday. 

Gains were annulled on Tuesday on the withdrawal of the amendment about the 2019 start date by conservative MEPs in ITRE, but losses were limited by the 20DMA at 7.17 euro. 

On Wednesday, the price broke the resistance at 7.42 euro, a level that stopped appreciation in the two days before. The meeting of the environment committee in the afternoon confirmed market's expectations about enough support for the early implementation of the market stability reserve and putting the back-loaded allowances directly into the reserve.

Speculation drove the price to 7.55 euro on Thursday morning, but the fact that MEPs in the industry committee were too split to come to an agreement about the parameters of the MSR, pushed it down to 7.00. 

The price fell further to 6.81 euro in the afternoon and the two candles from Wednesday and Thursday formed a bearish engulfing. The MACD crossed the signal curve and the 20DMA was also about to cross the 30DMA. All signals of pressure on the price. 

The price consolidated in the 6.80-7.00 euro range on Friday and found the same support today in the morning despite the huge auction supply this week (more than 14 million allowances will be auctioned) and the negative news from Greece and Ukraine that made investors in other markets turning their back to risky assets.

The reason might be that the market still sees a chance for a 2017 starting date of the MSR to be proposed by the environment committee which also supports the idea of not letting the back-loaded allowances to the market to avoid a zigzag in prices at the end of the phase. Beside the parameters, however, a new question emerged: how quick and smooth can the reform be approved? Will the rapporteur ask the Parliament for an opinion about the MSR and for a mandate to start trilogue negotiations first or initiate it based on the text approved in ENVI already? 

We can't let without mentioning the German dark spread either which was improving step by step in January and providing a support to the carbon price.

RSI, on the other hand remained in the neutral territory (43).

We could identify support levels at 6.31 (the 200DMA), 6.56 (a Fibonacci retracement level) and 6.80 euro ( the level that stopped the price from falling further last week).

7 euro is only a psychological resistance, but near 7.10 euro three indicators are waiting for the price: the 20 and 30DMA and a Fibonacci level. 

Our base range for the week is therefore 6.80-7.10 euro, which can be of course overwritten at any time into any direction by an MEP in Brussels. 

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