Monday, August 31, 2015

EUA Dec15: Increased auction supply might put a pressure on the price

Despite opening 1 cent higher than the settlement price the Friday before, the EUA Dec15 fell rapidly in the first ten minutes of trading last Monday. The benchmark contract plummeted below the 20DMA (at 8.08 euro) to 8.06 euro in the morning. The 10min RSI fell to 25 and triggered some purchases. As a consequence, the price climbed back to 8.18 euro.

The news on Tuesday about the People’s Bank of China cutting interest rates and reserve ratios helped not only stock markets in recovering, but also the EUA Dec15. The price jumped to 8.29 euro at noon, working off almost half of its losses from the two previous sessions. The price closed just 3  cents below the daily high, but this was enough already to push the MACD below the signal curve.

Stock futures in the red Wednesday morning suggested already that the Chinese measure might be not enough to calm investors. The benchmark carbon contract opened one cent above the settlement price of the previous day and jumped to 8.35 euro in the morning hours, but gave up gains quickly after noon and closed 2% below Tuesday’s settlement price. The candles from Tuesday and Wednesday formed a bearish engulfing, another bearish signal after the MACD crossed the signal curve on Tuesday.

Despite an auction cover ratio of 4.30, a record not seen since 16th June, the depreciation of the benchmark carbon contract continued on Thursday and the price fell to 8.01 euro, a 2.5 weeks low. The EUA Dec15 closed finally at 8.05 euro, below the 20 and 30 DMAs.

The 8.00 euro support level, however, proved a good support and turned back the benchmark contract on Friday. After some initial hesitation the price climbed back above the 30DMA, but was not able to break the 20DMA.

Increased auction volume and continued debate about the reform of the EU ETS might have the major impact on the EUA Dec15 price in September. 

Although the daily auction volumes increase from September, this week starts with a day without any auction due to the summer bank holiday. 

Should optimists get the majority on the trading floor, they have to break the two Fibonacci levels at 8.17 and 8.27 euro before retesting the 2015 high at 8.43 euro.

In a negative scenario, the first support will be the 8.00 euro followed by the 50DMA at 7.88 euro and the August low at 7.76 euro.

Source: Bloomberg L.P.

Wednesday, August 26, 2015

EUA Dec15: Will the support level stop it from falling further?

The lack of an EUA auction and the front year German power opening above 30 EUR/MWh helped the EUA Dec15 in opening in the positive territory and in climbing as high as to 8.35 euro (a former 2015 high), but bears invaded the trading floor in the afternoon. 

They pushed the price of the benchmark carbon contract lower by almost 2% to an intraday low at 8.10 euro where the 20DMA and a Fibonacci retracement level built a support level.

Should market be surprised by today's move? 

European stock futures in the red suggested in the morning already that market is sceptical about the measures taken by the Chinese central bank to be enough to boost the economy. The euro lost its power against the US dollar and the German front year power slipped also lower pushing the German dark spread down by 3% d/d.

If we add to these factors, that there are only three days left with a reduced auction volume, we shouldn't be surprised that the MACD crossed the signal curve from above giving a sell signal.

The benchmark contract appreciated almost 3% since the end of July and more than 10% since the end of 2014.

Should the market opt for profit taking and break the 8.10 euro level, the next support is near 8.05 euro (the 30DMA and the intraday low from Monday). The increasing trend channel which started in March would be, however, valid even if the price fell to the 50DMA at 7.84 euro.

Source: Bloomberg L.P.

Monday, August 24, 2015

EUA Dec15: Last week of low auction volumes

After the rally the week before, last Monday’s black candle suggested that there might be a correction this week coming with the EUA Dec15 closing at 8.25 euro, 8 cents lower than the Friday before.

Tuesday’s doji candle, however, showed hesitation of traders. As the reduced auction volume supported the prices of the benchmark contract, it settled 3 cents higher than the day before.

With a spectacular rally after the announcement of the UK auction result on Wednesday, the EUA Dec15 reached 8.38 euro, a level not seen for two years.

Bulls dominated the trading floor on Thursday as well, when the price jumped to a new 2015 high at 8.43 euro. The gains, however, could not be maintained. The technical indicators suggested that the price became overbought and a sell-off on international markets started on worries the Chinese economy would slow down more dramatically than previously thought.

Despite the good auction result on Friday, the EUA Dec15 didn’t climb any higher. With the German front year power falling to a record low the carbon fell to a new weekly low at 8.13 euro and settled 2% lower on the last day of the week.

Although the relative strength index is in neutral territory after Friday‘s losses, other indicators forecast a correction the last week already. The chances for the correction are increasing also as the period of low auction volumes comes to an end soon and traders might purchase the allowances less actively.

Should the (global) negative sentiment push the price lower, the first support level is the 20DMA at 8.08 euro, followed by the 30DMA at 8.02 euro. The August low at 7.76 euro is the next support level after that.

The strongest resistance at the moment is the 2015 high reached last Thursday at 8.43 euro.

Source: Bloomberg L.P.

Monday, August 17, 2015

EUA Dec15: Price became overbought after hitting a new 2015 high

The EUA Dec15 moved on a roller-coaster last Monday. Some traders might have thought that after four black candles there would be time for a correction, and the first trade settled at 7.92 euro, 13 cents higher than the settlement price the previous Friday. The price, however plummeted below the 30DMA after the first trade in front year German power happened, as this benchmark hit a new record low. Recovering German electricity prices, news about a heatwave in CEE, a strong action result (and the outlook of record low volume to be auctioned during the week) combined with an outlook for a Greek deal with creditors helped the EUA Dec15 in recovering and climbing even above its opening price. The price hit an intraday high at 7.96 euro and closed above the 20 DMA, at 7.93 euro.

After a bullish close on Monday the benchmark contract expanded its gains by more than 1% on Tuesday and climbed above 8 euro for the first time in a week.

Thanks to a strong auction result and a rally in the EUR/USD the EUA Dec15 was lifted to a new 2.5 year high at 8.23 euro on Wednesday and to another at 8.26 euro on Thursday.

Friday’s candle looked like a (bearish) shooting star in the morning, but the buyers invaded the trading floor at noon time to lift the benchmark contract to a new 2.5 year high at 8.36 euro. By this move the price filled a gap from 2012 and broke another resistance level.

Although the auctioned volume increases by 1.5 million this week, it remains below the weekly volumes in July and September. This low volume might support the EUA price this week. 

Technical indicators and the five white candles, however, suggest that the price became overbought on Friday (with the RSI at 71). In the case of a correction, the first strong support level is around 8.00 euro with the 20DMA (at 8.02 euro) and a Marubozu line waiting there.

Source: Bloomberg L.P.

Monday, August 10, 2015

EUA Dec15: Low auction volume failed to support the price

After falling 2.4% on the last two days of the previous week, the EUA Dec15 had a positive start to last week and gained 1% in Monday’s trading. Tuesday’s opening was also strong, mainly helped by higher German power prices. The EUA Dec15 climbed briefly above 8.00 euro. The chart contains, however, two warning signals making traders more cautious about buying carbon: the MACD crossed the signal curve on 31st July and the candles from the 29th and 30th July formed a bearish engulfing.

As the bearish signals seemed to kick in, the EUA Dec15 was not able to maintain gains and closed at its daily low at 7.91 euro on Tuesday, 4 cents lower than Monday’s closing price.

In a very thin trading, the EUA Dec15 tested the support level at 7.85 euro several times on Wednesday. As a consequence, the support got weaker and weaker, until it broke in the last minutes of trading. Traded volume was low during the whole day, and increased only when the support level was broken as there might have been stop-loss orders near that level. The benchmark contract closed below the 20DMA at 7.89 euro.

Intraday ranges were shrinking day by day. After Tuesday’s 10 cents, Wednesday’s 8 cents and Thursday’s 5 cents, the EUA Dec15 moved in  a band on 2 cents in the first hour of Friday’s trading. 
The range only widened after the price fell below the support level at 7.80 euro. Daily traded volumes also reflected summer lull.

All in all, although the long term increasing trend channel remained unhurt, the short term trend goes downwards. The former local high at 7.64 euro is the first support level, followed by 7.50 euro.

After four black candles from the last week, however, we might see some correction this week. Resistance levels are at the 30 and 20DMAs at 7.77 and 7.90 euro, respectively before retesting the 8.00 euro level.

Source: Bloomberg L.P.

Monday, August 3, 2015

EUA Dec15: Season of low auction volumes starts

Despite a relatively good start to the week, the EUA Dec15 slipped lower step by step last Monday. The first disappointment was the auction which—although well bid—cleared 4 cents below the secondary market price. In the afternoon the price moved in a narrow range of 5 cents between 7.98 and 8.03 euro.

From the Friday before until Tuesday, the EUA Dec15 moved in a declining trend channel. The correction happened after an 11% rally in July. The price hit a new weekly low at 7.95 euro (1 cent below a Fibonacci retracement level) on Tuesday. In the afternoon, however, the price tested the upper end of the short term declining trend channel and closed above it.

Wednesday morning the benchmark contract seemed to  return into the declining trend channel, but bulls invaded the trading floor at noon and pulled the price to 8.10 euro, just 5 cents below the 2015 high of 8.15 euro.

The benchmark contract had a neutral start to the day on Thursday, but a weak EUA auction and news in the afternoon about the IMF possibly not participating in a new Greek bailout might have been the trigger sending the price to a new weekly low at 7.85 euro in the afternoon.

Although the price held relatively stable during Friday, the short term technical picture worsened. The candles from Wednesday and Thursday form a bearish engulfing and the MACD crossed the signal curve on Friday to give another bearish sign. A good dark spread, however, kept the price from hitting a new weekly low on Friday.

In five auctions only 7.5 million EUAs will be offered after the 15 million from last week. The declining supply might support the price during the month. 

Average daily volumes might decline as market participants are on holidays and many power plants run maintenance.

Support levels are the 7.85 euro weekly low and the 20 and 30DMAs at 7.80 and 7.70 euro, respectively.

In a positive, scenario (for example well bid auctions) the price might climb back easily above 8 euro the first resistance level being at 8.10 euro (last week’s high) followed by 8.15 euro (2015 high).

Source: Bloomberg L,P.