Monday, September 21, 2015

EUA Dec15: Bearish signals might make traders cautious

With most of the market participants waiting for the rate decision of the US Federal Reserve, the carbon market moved in a very narrow range of 7 cents on Monday. Daily traded volume of less than 4 million also reflected that many traders opted for staying at the side lines of the market. All in all, the benchmark contract closed 3 cents lower than last Friday, confirming the signal the bearish engulfing from previous week gave. In addition, the MACD slipped below the signal curve, adding bearish sentiment.

Falling German and Polish power prices, worse than expected German ZEW figures and a weak auction result pushed the benchmark carbon contract below the 20DMA on Tuesday. The price closed 6 cents or 0.7% below Monday’s settlement price.

Wednesday started in a positive mood after the appointment of Ian Duncan as rapporteur for the post-2020 EU ETS reforms and the front year German power climbing slightly higher. The strong auction result and a surprising rally in oil prices in the afternoon pulled the price to 8.27 euro. The settlement price of 8.24 euro was 0.7% higher than on Tuesday.

Thanks to the three black candles (days with declining prices), however, the 30DMA approached the 20DMA and reached it on Thursday morning, to provide another bearish sign for the next days.

Thursday was one of the most boring days in the life of the EUA Dec15 with all market participants staying at the side-lines of the market before the rate decision of the Fed. The price moved in a narrow 8 cents range in the morning, but was totally flat in the afternoon.

Despite the adoption of the MSR by the EU Council on Friday, the EUA Dec15 was rather weak pressured by a sell-off in Europe (the German DAX index fell below the critical 10,000 points) after the Fed decision.

There are several bearish signals in the chart right now. 
  • There is a bearish engulfing from the 10th and 11th of August. 
  • MACD fell below the signal curve last Monday and
  • the 30DMA climbed above the 20DMA. 

Source: Bloomberg L.P.

Should there bearish signs prove corrects, the price will have to fight with the 50DMA first, at 8.08 euro. (This is happening this morning.) The next support level is the psychologically important 8.00 euro level and after that a local low at 7.95 euro and the August low at 7.76 euro.

One should, however, keep in mind that discussions about the reform of the EU ETS Directive after 2020 in the working group on the environment of the European Council will continue this week, which might provide a positive momentum to the price. In a positive scenario, the 30 and 20DMAs have to be retested at 8.19 and 8.17 euro, before climbing back to last week’s high at 8.29 euro.

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