Monday, February 23, 2015

EUA Dec15: Traders waiting at the sidelines for the ENVI vote about the MSR

The long legged doji from last Monday and the fact that the EUA Dec15 was not able to maintain its intra-day gains was not the first warning signal that a correction might start. The week before the RSI went already above the critical 70 level and the price traded outside the Bollinger bands, above the upper one. Other warning signal was the bearish engulfing built by the first two candles of the week after no political group joined the compromise amendments to the MSR tabled by the rapporteur Ivo Belet by the Tuesday evening deadline.

The lack of headlines in the second half of the week clarifying political groups positions about the MSR pulled the price of the benchmark contract down further. In addition, recently published materials showed that the unallocated allowances (from the New Entrants' Reserve and unallocated to stationary installations due to reduction in the activity level or closure) - unless tackled - will affect negatively the carbon price.

The increasing trend which started last October is still valid and in theory the trend line shouldn't let the EUA Dec15 price fall below 7 euro. 

After the vote in the industry committee in January a disappointing outcome in the ENVI (if the lead committee cannot agree on a draft proposal which can be tabled either in trilogue negotiations or in Parliament plenary) could however send back the price below the 7 euro level. Here the first support is at 6.80 euro (the daily low after the ITRE vote) followed by 6.55 euro (a daily low from last December) and the 200-day moving average at 6.48 euro.

Since last Tuesday the volume traded in the EUA Dec15 is decreasing day by day. Many traders might opt for staying at the sidelines in order to not be caught in a position when volatility kicks in during the vote in the environment committee. 

Still the price is above 7 euro which might be a sign that majority of market participants expects a final compromise between the two major political groups in the Parliament (the EPP and the S&D). If this scenario becomes reality, we expect the 8 euro level to be retested.

 Source: Bloomberg Finance L.P.

Monday, February 16, 2015

The EUA Dec15 jumped 10% last week

Last Monday morning the EUA Dec15 retested the low at 6.87 euro from the week before, but it managed to climb back to just 1 cent below 7 euro in the afternoon, supported by a healthy German dark spread. 

Tuesday morning was characterized by range bound trading as well, but optimism regarding the outcome of the shadow rapporteurs' meeting on the next day pushed the benchmark contract above the 20 and 30DMAs in the afternoon pulling the MACD above the zero line as well. 

The price appreciation continued on Wednesday and Thursday on positive news about the MSR. The rapporteur of the draft proposed a 2018 start, putting the back-loaded allowances straight into the reserve and establishing an innovation fund. EPP and the Socialists expressed their support for the amendments immediately, but they have until tomorrow to express their opinion officially. The EUA Dec15 broke resistance levels at 7.25 and 7.33 euros, but was stopped by the 22nd January high of 7.55 euro. 

After some sideways movement in the morning, appreciation continued on Friday when the price closed at a two years' high of 7.71 euro. The local highs at 7.55 euro (from 22nd January, the date of the vote in the industry committee) and 7.57 euro (the high from 24th December 2014) were broken which might have triggered some technical trading (short squeeze).

The EUA price was supported also by positive news outside the carbon market:
  • Record long negotiations between Ukraine, Russia, the separatists and German Chancellor Angela Merkel and French President Hollande led to a ceasefire last Thursday.
  • German front year power gained more than 3% last week and the corresponding dark spread expanded almost 2% as well.
  • Brent climbed further on reported cost cuts in the sector and the weakening USD.
  • Stock indices hit new records both in Europe and the US.

From the technical analysis' point of view the price seems (almost) overbought at the moment. The relative strength index (RSI) is at 68, very close to the critical 70 level from where an asset is considered overbought.

For two days the benchmark contract trades outside the Bollinger band, and above the upper one (at 7.61 euro at the moment).

Although it is possible that we receive further positive news about the MSR (compromise amendments supported by a majority of political groups in ENVI), the above increases the chances for a correction. This latter might be triggered by the free allocation of allowances. The European Commission announced last week that it would publish the status table of 2015 free allocation on 3rd March suggesting that majority of stationary installations should receive their entitlement in the next two weeks. We only expect delays in the case of installations with a significant change in their activity levels. 

In the case of a correction, the price could retest the earlier resistance levels mentioned above (7.57, 7.55) and the moving averaged (20DMA at 7.17 euro and 30DMA at 7.13 euro).

Negotiations about the MSR might however still support the price. The first resistance is a small gap between 7.75 and 7.80 euro. The 8 euro level is a weak psychological resistance, followed by 8.10 euro, a local high from October 2012. 

Source: Bloomberg Finance L.P.

Monday, February 9, 2015

EUA Dec15: Hesitating in the range defined on the day of the ITRE vote

The EUA Dec15 opened above the 30DMA at 7.13 euro on Monday and maintained its strength during the whole day. Tuesday was characterized by a continuous fall from the market open, but the benchmark contract managed to close at the 30DMA at 7.13 euro.

DMAs were broken in Wednesday’s sell-off and the price fell below 7 euro again. It only climbed back to the psychologically important level of 7 euro by the end of the trading session. The decline extended on Thursday and was enough for the MACD to cross the signal curve and to fall below zero.

The price couldn't even retest the MDAs on Friday, but fell further, Today's open brought a new local low again.

All in all, the benchmark contract seems to trade in the lower edge of the daily range from the 22nd January (the day of the vote in the industry committee), 6.81 and 7.55 euro. 

The RSI is in the neutral territory reflecting the hesitation of the benchmark contract about which direction to take. 

The first support can be found at 6.80 euro, the lower edge of the range mentioned above. The lower Bollinger band is at 6.72 euro and there is a local low from 7th January at 6.68 euro.

To the upside the resistance levels to test first are the moving averages. The 30DMA at 7.08 euro and the 20DMA at 7.11 euro. There resistance levels are followed by 7.25 euro, last week's high.

The 7.55 euro, the high from the day of the ITRE vote could be only retested in our opinion, if discussions in the ENVI committee on Wednesday lead to compromise amendments about the MSR design.

Source: Bloomberg Finance L.P.

Monday, February 2, 2015

EUA Dec15: Trying to work off the effect of the ITRE vote

Six consecutive white candles were still not enough for the EUA Dec15 to climb back to the level it fell off on the day of the ITRE vote about the MSR on 22nd January, but it seems now that there is a cautious majority hoping for an early implementation among traders.

The benchmark contract took a break and consolidated in a narrow range between 6.80 and 7.00 euro on the first two days of last week. Appreciating German power and a revised EUA price forecast helped the benchmark contract overcome the psychologically important 7.00 euro resistance level on Wednesday and the closing price was 2 cent above this resistance which worked as support on the next day.

The sideways move brought the MACD close to the zero line, but a cross didn’t happen last week, only today in the morning helped by the appreciating German front year power. 

Today's opening above the 30DMA (at 7.13 euro) is a positive sign. The 20 and 30DMAs (at 7.06 and 7.13 euro, respectively) will be the first support for the price. The strongest support however still seems to be at 6.80 euro.

Shadow rapporteurs in the ENVI committee are expected to discuss the MSR on Tuesday, and the Council continues negotiations about the reserve on Friday. Any positive message from these meetings could help the price in testing resistance levels. The first one being at the daily high of the 22nd January at 7.55 euro, followed by the 2014 high at 7.66 euro.

Source: Bloomberg Finance L.P.