Monday, March 23, 2015

EUA Dec15: 9% rally within a week

The benchmark carbon contract gained almost 9% last week on plans of forcing outdated German power plants to purchase more EUAs and maybe also some speculation on the positive outcome of this week's COREPER meeting.

Last Monday the EUA Dec15 spent the day in a narrow range between 6.41-6.51 euro as traders were waiting for headlines about the Working Party meeting discussing the MSR. The price touched the 200DMA, but didn’t climb above it only on Tuesday despite news about a strong support for a 2021 MSR start date in the Council. 

Tuesday's rally kept the price above the 200DMA at 6.60 euro and the appreciation continued on Wednesday as well. The short term declining trend which started after the ENVI vote end of February seemed to be broken, but the price didn’t climb back above the long-term increasing trend lines yet. 

The price took a break on Thursday after newswires reported that Finland wouldn't support an early start of the MSR and Romania is sticking to the revenues it could make from auctioning the back-loaded allowances.

The 200DMA at 6.62 euro was tested Friday morning, but with a surprisingly strong impetus the price turned back and after breaking the 20DMA it jumped back above 7.00. The spectacular rally - mainly motivated by a leaked German plan which would force old power plants to purchase more EUAs - lifted the price to the 30DMA at 7.10 euro, but this resistance level halted further gains. By the end of the day the benchmark contract however could maintain almost all the gains, and the rally was enough to lift the MACD above the signal line and give a buy signal.

The relative strength index is at 52, still in neutral territory which leaves the room open for further gains, although the week might start with some correction after the hefty gains on Friday. Also, the 30DMA at 7.10 might need more attempts to be broken.

On the other hand, we might see the usual pattern repeated in market buying the rumour and selling the fact before and after the COREPER meeting of ambassadors on Wednesday which might end with an official Council position on the MSR and the start of trilogue negotiations.

The other possible scenario is that traders adopt a wait and see mood before the meeting as country opinions seem to diverge more than it was the case among the political groups before the ENVI vote when it was clear that there was a broad support for a more ambitious design of the MSR. In this case the 200DMA and the 30DMA might indicate the ranges of the trading band.

The first support level is the 20DMA which is also a Fibonacci retracement level at 6.90 euro.The next support is of course the 200DMA which is a Fibonacci level and last Friday's low as well now at 6.63 euro. This level is followed by a weaker support level near 6.40 euro which was a local low on several days already. If no agreement can be reached on Wednesday, the price might retest also the 2015 low at 6.28 euro.

In a positive scenario, the benchmark contract breaks the 30DMA at 7.10 euro and the Fibonacci level at 7.27 euro might be no big hurdle either and the price might rally until 7.45-7.50 euro where the upper Bollinger band might limit gains.

Source: Bloomberg Finance L.P.

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