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.

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