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.

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