Monday, April 13, 2015

The EUA Dec15 fell from the short term increasing trend channel

After the Easter holidays, the EUA Dec15 had a weak start to the week. The benchmark contract traded in a narrow range of 6.89 and 7.26 euro defined by the candle from 1st April for six days.

As there were no new headlines about the MSR, the carbon market followed mainly the energy mix. The German front year power lost 0.4% last week, but the corresponding dark spread had a more dramatic fall of 8% as the coal appreciated in parallel with the strengthening of the US dollar.

7.09 euro proved a good support for the EUA Dec15 as it was tested twice on Tuesday and on Wednesday, but the more it got tested, the weaker it became.

This support level broke then on Thursday when the price touched a daily low at 7.04 euro. The depreciation continued on Friday when the price fell below 7 euro and didn’t climb back above this level by the end of the day, but closed at the mid-Bollinger band at 6.98 euro.

The MACD reversed its direction and turned back south, but it is still above the zero line. This, however, weakens the buy signal given by the 20DMA last Thursday when it crossed the 30DMA. The price fell from the short term increasing trend channel last Thursday. 

At the same time, the CER had a spectacular rally. There might be installations swapping EUAs for CERs or simply buying the cheaper credits for compliance purposes.

Although there is a possibility that politicians share their opinion about the MSR in the coming days/weeks, the next round of trilogue negotiations is scheduled for the 5th March, after the compliance deadline.

This makes us suppose that the balance of supply and demand of allowances might have a bigger impact on the EUA price in the coming 10-12 days. It might be worth mentioning that installations are still waiting for a total of 297 million EUAs: 193 million from the 2015 free allocation (which they could "borrow" for 2014 compliance) and 104 million from derogation (five entitled countries didn't distribute the allowances yet). If all these allowances land in the market in the next less than three weeks, this additional supply might have a negative impact on the EUA price.

Should the price fall further, support levels can be found at 6.92 (30DMA), 6.90 (Fibo), 6.75 (local low from 31st March), 6.70 (200DMA).

Should positive comments from politicians help the price recovering or should the member states not be able to distribute the missing allowances, resistance levels could be retested at 6.98 (20DMA), 7.05 (Fibo), 7.29 (local high from 23rd March), 7.50 (Fibo).

 Source: Bloomberg Finance L.P.

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