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.