Monday, September 28, 2015

EUA Dec15 under pressure

The negative trend in the German front year power and the weakening of the euro versus the US dollar put a pressure on the EUA Dec15 last week. In addition, the rapporteur of the post-2020 EU ETS reforms Ian Duncan saying that his report on the draft won't be ready before the second quarter of 2016, increased fears about prolonged uncertainty in the carbon market and had an additional negative effect on the carbon price.

Continuing the negative mood from the Friday before the EUA Dec15 opened last week with a one cent gap down. The price fell to a daily low of 8.06 euro, but recovered after a strong auction result. The weakening of the euro, however, pushed the price to a 2-week low at 7.98 euro in the last hour of trading. The lower Bollinger band stopped further depreciation here.

The lower Bollinger band halted further declines in the EUA Dec15 and the price consolidated above 8 euro on Tuesday. The benchmark contract consolidated above 8.00 euro supported by the European coal prices falling to a record low. The price, however, traded in a very narrow range of 7 cents.

Helped by higher German power prices and a strong dark spread, the EUA Dec15 climbed higher on Wednesday and gained 5 cents (+0.6% d/d). Although it climbed above the 50DMA during the day it was not able to close above this level. At the same time the MACD slipped below the zero line, providing another bearish signal. The 50DMA at 8.10 euro halted further gains Thursday morning as well.

With a significant volume, but low intraday volatility the EUA Dec15 fell to 8.01 euro on Thursday (-0.9% d/d). While the price was moving sideways, the bearish signals were convening. 

  • The MACD slipped below the zero line.
  • The 20DMA is below the 30DMA. 
  • There is a bearish engulfing from Thursday/Friday before and 
  • last Thursday’s candle also seems to have formed a bearish engulfing with Wednesday’s candle.

With a strong dollar pushing the German dark spread below 3 euro, the EUA Dec15 hit a new 3 week low at 7.96 euro on Friday.

The EUA Dec15 moved mainly sideways around 8.00 euro last week. In the lack of any development regarding the post-2020 EU ETS reforms and the German front year power in a declining trend, the benchmark carbon contract might slip further. 

We can find support levels at 7.94 (lower Bollinger band and a Marubozu line), at 7.92 (a Fibonacci level) and at 7.76 euro (August low).

In the case of a correction the price has to break the moving averages first (50DMA at 8.10, 20DMA at 8.14 and 30DMA at 8.16 euro) to be able to retest former highs.

Source: Bloomberg L.P.

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