Monday, May 25, 2015

EUA Dec15: Hesitating at the bottom of the trend channel

The EUA Dec15 opened 2 cents above previous Friday’s close at 7.62 euro last Monday, but in tandem with the plummeting German front year dark spread it quickly reached 7.55 euro in the morning hours. This movement pushed the MACD below the signal curve, giving another sell signal after the two candles from the 13th and 14th of May formed a bearish engulfing. The price received support in the afternoon from the European Commission saying that accumulated oversupply of EUAs decreased to 2.07 billion in 2014.

The weakness, however, continued on Tuesday as well. The price moved in a 10 cents range between 7.55 and 7.65 euro until the last two hours of business when it started plummeting and hit a new monthly low at 7.36 euro.

The EUA Dec15 tested the support level at 7.36 euro on Wednesday for the second time. The price was caught in the trap of the 20 and 30DMAs at 7.51 and 7.34 euro, respectively. This range defined Thursday’s movement as well, but by the end of the trading session the price fell to 7.32 euro, below the 30DMA and a new monthly low again. It also fell from the increasing trend channel which started mid-March.

After four black candles one would have expected some kind of bounce back in the price of EUA Dec15 on Friday. We often see buyers appearing on Friday afternoon, but the question was if anybody dared to open a long position ahead of a long weekend in many countries. Volume and volatility was already low on Thursday. In addition the technical picture didn’t look well. After some hesitation the price of the benchmark contract fell to a new monthly low at 7.27 euro Friday morning and even lower, to 7.25 euro in the afternoon. The expected buyers, however, appeared on the trading floor in the afternoon and lifted the price 9 cents higher than the daily low. The benchmark contract closed the week at 7.34 euro.

The price fell below major support levels last week which will function as resistance levels in the future. As the MSR seems to be a deal done, it might be priced in already in the current market price. A political event, like the vote in the ENVI committee on Tuesday would generally have a major price impact, but as the broader market expects the positive decision to be priced in, the price reaction might be moderate.

The RSI is near 50, in neutral territory. The MACD crossed the signal curve on 18th May, but is still above the zero line.

In the next days it is difficult to find any event or factor which might support the price, except for the ENVI vote. The first such factor might be the announcement of the reform proposals for the post-2020 review of the EU ETS Directive. The European Commission emphasised plans to publish those before August. Until then chances are higher that the price moves lower or sideways. 

The long-term increasing trend, however, which started last year when back-loading became operational is still valid. In addition, 2015 Carbon Expo starts this Tuesday with the key people of the market assisting the event. Any news filtering from the conference might move the price of the benchmark carbon contract.

 Source: Bloomberg Finance L.P.

Monday, May 18, 2015

EUA Dec15: Quiet week ahead

After the initial sideways movement the EUA Dec15 started climbing higher to hit 7.67 euro last Monday. The benchmark contract continued its appreciation on Tuesday and reached 7.74 euro, 1 cent below the 2015 May high.

The positive decision of the COREPER meeting on Wednesday about the MSR didn’t bring any new highs. Some traders might have decided to take the profit from earlier long positions which resulted in the benchmark contract falling back to 7.52 euro during the day to recover before the market closed and finish the day at 7.68 euro.

Thursday’s trading was characterized by extremely low volumes as German and French traders stayed away from their desks due to a public holiday (Ascension Day). The EUA Dec15 moved in a narrow range of 8 cents between 7.70 and 7.62 euro in most of Thursday’s trading. In the last 20 minutes, however, the support level was broken and the price fell to 7.58 euro accompanied by one third of the daily volume.

Thursday’s candle together with Wednesday’s candle form a bearish engulfing, although the low volume weakens the signal of this technical formation.

In the first two weeks of May the EUA Dec15 moved in a range between 7.41 and 7.75 euro which might be the range of this week as well, as the political agenda is empty, but abundant supply is secured from five auctions of  a total of 12 million EUAs to be held on EEX.

Thanks to the MSR negotiations it moved closer to the upper range and the relative strength index approached the 70 level which suggests that some correction might be in the cards. The distance between the MACD and the signal curve is decreasing, and when the former crosses the latter, it might be the sign of the start of a correction period.

The first support level can be found at last week's low at 7.50 euro, followed by the 20DMA at 7.47 euro and the 30DMA at 7.31 euro. The short term increasing trend that started mid-March would be broken if the price fell below the 30DMA.

In a positive scenario last week's high at 7.74 would be the first resistance level to test, before the price could try to break the 2015 high at 7.90 euro.

 Source: Bloomberg Finance L.P.

Monday, May 4, 2015

EUA Dec15 helped by positive surprise from COREPER in reaching 2-month high

Compliance buyers and last Wednesday's COREPER meeting helped the EUA Dec15 to hit 7.64 euro, a level not seen for 2 months.

Despite spending most of Monday’s trading between 7.30 and 7.40 euro, the EUA Dec15 started plummeting in the afternoon thanks to the appreciation of coal and hit a daily low at 7.16 euro to recover just slightly to 7.19 euro by the end of the day. After the sell-off the technical picture worsened. The last three candles formed a so called “evening star formation” which generally suggests a bearish reversal.

Losses continued on Tuesday until the news about Czech Republic leaving the blocking minority pulled the price up to 7.33 euro again. The official deny pushed the price back by 10 cents, but couldn’t defy traders’ optimism who pulled the price to a new 2-month high by the end of the trading.

The appreciation continued on Wednesday when EU member states approved a new position about the MSR for the next trilogue negotiations with 2019 start date. The countries also agreed to transfer back-loaded and unallocated allowances into the reserve at the end of the phase. The Czech Republic and Lithuania surprised market with leaving the blocking minority led by Poland. The price of the benchmark contract climbed to 7.53 euro, breaking the resistance level at 7.52 euro (a Fibonacci retracement level).

The space until the next resistance level at 7.90 euro (2015 high) was filled until 7.64 euro on Thursday. The RSI, however, got closer to the overbought territory. Some traders, scared by overbought prices might have closed their long positions and by the end of the day the benchmark contract closed at 7.43 euro, just two cents above the daily minimum of 7.41 euro. In addition, compliance buyers might have disappeared by the end of the day.

Bulls returned to the trading floor on Friday, although with a small volume. Only 4.5 million EUAs traded in the benchmark contract. The price increased during the morning hour, took a brake at noon to recover and close at the Fibonacci retracement level at 7.52 euro.

The technical picture is positive, although the recent price appreciation might have been too much in a too short time. A positive outcome of the trilogue negotiations might help the price retesting 2015 high at 7.90 euro, but a correction might be in the cards after that as speculators might opt for profit taking and there won’t be any compliance buyers supporting the price. We therefore expect declining prices in the second half of the week after the initial appreciation. 

Source: Bloomberg Finance L.P.