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.

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