Monday, July 27, 2015

EUA Dec15: Nobody wanted to miss the rally

Helped by positive analyst comments about the post-2020 EU ETS reforms and a front year German power price hitting a 4-month high, the EUA Dec15 broke an important level at 7.85 euro on Monday, which was the high reached after the post-2020 EU ETS reforms had been announced. 

The rally lifted the 20DMA higher above the 30DMA, confirming the buy signal. The RSI climbed to 68, just 2 points below the overbought territory.

Some late coming traders might have had the feeling they missed something on Monday and lifted the benchmark contract to 8.07 euro with early purchases. The German front year power also hit 32.50 euro/MWh in the morning, but traders opted for taking profit later during the day. The EUA Dec15 fell back to 7.94 euro at noon.

On Wednesday, the EUA Dec15 closed unchanged compared to Tuesday’s closing price. 

With a spectacular rally, the benchmark contract hit a new 2.5 year high at 8.15 euro on Thursday. In the morning the appreciation was helped by the stronger euro which had a positive impact on the dark spread. Utilities therefore might have lined up on the buyer side. After breaking Tuesday’s high at 8.07 euro, the movement accelerated which might have been a technical phenomenon. There are generally many orders (stop-losses or new orders) at former record levels. The RSI climbed above 70 during the day, suggesting that some correction might be in the cards.

Overbought prices and data of the European Commission from Thursday evening showing that 80% of the new entrants’ reserve is still available and some 165 million allowances haven’t been distributed because of plant closures, pushed the EUA Dec15 slightly lower on Friday.

Despite the correction on Friday, the EUA Dec15 had its biggest weekly advance since April. The price is psychologically well supported by the reduced auction volumes in August, but there might be some traders closing their long positions before leaving their desks for holidays and before further political announcements about the EU ETS in September. All in all, we expect the price to move around 8 euro this week.

Source: Bloomberg L.P.

Monday, July 20, 2015

EUA Dec15: Summer lull

The Greek deal reached in the early hours of last Monday gave wings to the EUA Dec15. The price had a nice rally during the day and broke resistance levels at 7.64 and 7.75 euro reaching an intraday high of 7.82 euro. The benchmark contract closed the day at 7.80 euro, an appreciation of more than 2% compared to the previous Friday’s settlement price.

As a natural consequence, there was a correction on the next day, but the price remained above the key levels mentioned above (as former resistance levels became support levels after Monday’s rally) and even hit a new local high at 7.85 euro in the early hours of trading which will serve as resistance level in the future.

The benchmark contract moved in a narrow range of 7.74-7.83 euro on Wednesday, the day when the much awaited post-2020 reform proposals were published by the European Commission. The price though didn’t hit any new highs or lows. As the proposals didn’t contain any major surprises, some traders might have opted to close their long positions and leave their desks for summer holidays.

Despite the publication of the post-2020 EU ETS reform proposals on Wednesday and the highest cover ratio in auctions since 29th June, the EUA Dec15 dropped 0.4%. The idea to use hundreds of millions of allowances that were not allocated in phase 3 in the period 2021-2030 has received some negative comments saying that the step would weaken the price increasing effect of the MSR.

The benchmark contract tried to climb back after the heavy losses Thursday afternoon, but as the clearing price of the German EUA auction was at least 5 cents lower than the secondary market price, the EUA Dec15 fell to 7.63 euro. Buyers though entered the trading floor in the afternoon and pulled the price to 7.76 euro.

Although the day of the publication of the post-2020 reforms didn't result in a rally, the EUA Dec15 still gained 1.7% in a weekly comparison thanks to the positive reaction on the Greek deal on Monday and speculation on the reforms on Tuesday.

As we saw it in the second half of the last week already traders prepare for summer holidays. After the publication of the post-2020 reform proposals there is nothing to expect from Brussels until September. Both politicians and traders might start their summer holidays which might result in low volumes in the carbon market. The EUA Dec15 might therefore move in the range we got used to in the last weeks (7.40-7.80 euro). Technical signals diverge. The relative strength index (RSI) is in the neutral territory at 60.

 Source: Bloomberg L.P.

Monday, July 6, 2015

EUA Dec15 relatively stable despite negative news flow

Despite hitting a one-month low on Monday, the EUA Dec15 remained in the 7.18-7.64 euro range it moved in the last two months. This shows its strength, because from the downside the price is well supported by expectations for a positive plenary vote about the MSR next week and for ambitious post-2020 proposals on 15th July. The MACD, however, slipped below the signal curve again, giving a bearish signal.

The price continued its recovery on Tuesday as well and climbed shortly above the 30 and 20DMAs, but was not able to keep the gains and closed just slightly above the 30DMA.

The benchmark contract spent most of Wednesday between the two moving averages and by the end of the day it climbed 4 cents higher than Tuesday’s settlement price.

After two days of appreciation, the EUA Dec15 turned downwards on Thursday as the German coalition decided against the planned coal levy. As a consequence, even outdated coal fired power plants would be able to supply electricity, but only if the demand (and the price) reached a critical level. The German front year power lost 0.6% in Thursday’s opening and the EUA Dec15 fell 4 cents from Wednesday’s settlement level.

The EUA Dec15 opened at 7,43 euro on Friday and appreciated the whole day long, but closed just flat compared to Thursday’s settlement. The volume was lower than generally on Fridays, because the banking holiday in the US and the European heatwave kept many traders away from their desks.

All in all, the EUA Dec15 held relatively stable despite the negative news flow last week (Greek default, closing of German lignite plants). The price might have been supported by expectations for an approval of the MSR by the plenary of the European Parliament this week and for ambitious reform proposals from the European Commission next week.

If market gets disappointed the price could fall back to the local low at 7.18 euro from May or even to the 200DMA at 7.04 euro.

In a positive scenario, the price has to break the 20DMA at 7.51 euro first before retesting the local June and May highs at 7.64 and 7.75 euro, respectively.

Source: Bloomberg L.P.