Monday, March 30, 2015

EUA Dec15 lost 4% w/w

Despite some intraday volatility due to power prices and the dark spread the benchmark contract closed at the same level on the first two days of the week as traders were waiting for the outcome of the COREPER meeting on Wednesday where member state ambassadors tried to draft a common position on the MSR. 

As the first round of the meeting in the morning was not successful, the price fell  below the 20DMA to 6.77 euro. The benchmark contract, however, recovered in the afternoon on hopes that the second round of negotiations would bring some results. 

The adopted proposal is not really ambitious with a start date in 2021 and only the back-loaded allowances put into the reserve. Consequently, the price fell to 6.89 euro in Thursday’s opening, but recovered after traders realised that what will be adopted finally in the trilogue can be this or stronger. Especially, as Germany came out with a statement almost immediately after the COREPER decision emphasising its support for a more ambitious MSR. The price jumped to a 1 month high in the first hour of Thursday’s trading. 

The price, however, couldn't maintain its gains and fell on Friday below the 20DMA and closed just one cent above the daily low, worsening the technical picture.

Uncertainty remains in the market about how the final design of the MSR would look like and when the decision would be adopted. The MACD is still in the negative and RSI (at 46) in the neutral territory.

In addition, this week's calendar is full of events that might have an effect on the carbon price and increase its volatility. 

The first trilogue meeting takes place on Monday (today). The market might move sideways until the first headlines about the meeting are released as the positions of the Council and the Parliament are quite far away from each other. (The Commission said earlier that it is ready to support an earlier start, if there is enough support for it in the Parliament.)

CP1 Kyoto credits lose their eligibility in the EU ETS on 1st April, Tuesday is the last day to exchange them for EUAs for those companies which still have spare linking capacity. This might marginally decrease the demand for EUAs on the first two days of the week.

The European Commission will publish the updated status table on the 2015 free allocation Tuesday evening. Some 200 million allowances still have to be distributed by the member states before the end of April which would increase the supply of EUAs.

2014 verified emissions data will be published on Wednesday. Preliminary figures from member states and the biggest participants of the EU ETS (RWE, EON, Drax etc.) suggest that we have to expect a significant decline in the emissions. Market consensus expects a 5.5% fall compared to 2013. Should emissions have fallen more than this, the price might react negatively.

The only factor that seemed to be supportive for the EUA price this morning was the fact that auction supply would be cut by more than 3 million this week as the German auction falls out on Good Friday.

Unless the first trilogue brings a surprisingly good result, the price might trade below 7 euro this week. In the case the price turns south, the first support would be the 200DMA 6.65 euro, followed by the lower Bollinger band at 6.46 euro and the 2015 low at 6.28 euro.

In a positive scenario, the benchmark contract has to break first the 20 and 30DMAs at 6.83 and 7.02 euro, respectively, before retesting last week's high at 7.29 euro.

Due to the above, however, we give a higher probability to the negative scenario.

Source: Bloomberg Finance L.P.

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