Monday, October 26, 2015

EUA Dec15: Is the sky the limit?

The EUA Dec15 traded in a narrow range of 11 cents last Monday and closed 0.5% below the settlement price of the Friday before. 8.30 euro, a daily low several times in the second week of October proved a good support level.

Thanks to the afternoon rally, the EUA Dec15 jumped to 8.48 euro on Tuesday, and closed just one cent below the intraday high, the highest close since November 2012. Thanks to the rally, the 20DMA crossed the 30DMA from below, which might be considered as a positive sign. In addition, Tuesday’s and Monday’s candles formed a bullish engulfing. No surprise that the price retested the 3 year high at 8.51 euro Wednesday morning. Thanks to the European 2016 coal price plummeting to a new record low and the lack of the UK auction, the price reached 8.54 euro during the day. In the afternoon, however, it was not able to maintain its gains and closed the day at the intraday low of 8.45 euro.

The price took a break on Thursday and moved in a 6 cents range between 8.42 and 8.48 euro most of the day. This consolidation seemed to prepare the rally Friday when the price hit a new three year high at 8.63 euro and even managed to close at this level.

The huge white candle could make traders more optimistic about the continuation of the increasing trend, but the relative strength index at 69 warns of overbought prices which might result in consolidation around 8.50 euro or profit taking. The weekly auction volume increases by 3 million, which might limit the upside potential this week.

Support levels are at 8.55 euro (the middle line of Friday’s candle), 8.45 and 8.34 euro (Fibonacci lines) and the 20 and 30DMAs at 8.28 and 8.23 euro, respectively.

Source: Bloomberg L.P.

On the other hand, environment ministers will discuss the post-2020 reforms of the EU ETS Directive for the post-2020 period. If the meeting has positive messages for the market (ambitious reductions in the free allocation, perspective of a quick agreement among member states), this could potentially boost the price further. To the upside the sky is the limit, as the price fell from 10 euro to the current levels quite quickly in 2012. Psychologically the round figures could be considered as resistance levels (9.00 euro, 9.50 euro).

Source: Bloomberg L.P.

Monday, October 19, 2015

EUA Dec15 hit new three year high at 8.51 euro

After the EUA Dec15 reached the 2015 high at 8.43 euro Monday morning, traders decided to take profit and the price closed 5 cents below last Friday’s settlement.

The EUA Dec15 consolidated in a 6 cents range on Tuesday. The technical picture was neutral at the moment. The 2015 high at 8.43 euro has been tested once on Monday. With every new test, however, the level became weaker and weaker.

With a spectacular rally Wednesday afternoon the EUA Dec15 broke out from the narrow range it traded on Tuesday and in the first half of Wednesday and hit a new 3-year high at 8.47 euro.
The EUA Dec15 extended Wednesday’s gains on Thursday and hit a new 3-year record at 8.51 euro. After three days of rising prices, however, the benchmark contract ran out of the Bollinger bands which made a correction likely in the afternoon. After the recent rally, some traders might have opted for profit taking which pushed the price lower on Thursday and on Friday. All in all, the EUA Dec15 gained 0.5% last week.

The RSI remained in the neutral territory during the whole week, but came close to the overbought territory when the price hit the new record. At the same time, the upper Bollinger band at 8.48 euro limited further gains.

The negative trend in the German power and European gas prices exercises a pressure on the EUA price. The first strong support level is at 8.30 euro (closing price from last Monday and daily low from Tuesday and Wednesday). The next support level is around 8.18 euro, where several moving averages (20, 30, 50DMAs) meet.

The price might receive support from ADP negotiations in Bonn, falling coal prices and the lower auction supply this week. Should the price be able to expand gains, the former 2015 high at 8.43 euro is the first resistance, followed by the new record at 8.51 euro. Above this level two local lows from 2012 form resistance levels at 8.58 and 8.64 euro.

Last week we saw the EUA price reacting actively on changes in the EUR/USD. he European Central Bank will have a rate setting meeting this Thursday. Although no change in the current rate of 0.05% is expected, but during the press conference after the meeting the President of the Bank might hint on planned measures to boost the European economy which might move the FX pair and the carbon at the same time.

Source: Bloomberg L.P.

Monday, October 12, 2015

EUA Dec15: Friday rally lifted the price above the declining trend channel

Despite the weak opening in the first minute of trading when the EUA Dec15 fell to a 3-day low at 8.06 euro, the benchmark carbon contract rallied to 8.24 euro last Monday, almost reaching the weekly high from the week before at 8.25 euro. The intraday rally lifted the MACD above the signal curve and the zero line. The price came close to break the slowly declining trend channel that started after the 2015 high was reached in August. The candle from Monday and that from the Friday before formed a bullish engulfing making the outlook brighter.

After having retested the support levels formed by the 20 and 30DMAs, the EUA Dec15 kept gains and closed 1 cent higher on Tuesday. The price was still at the upper edge of the declining trend channel.

Despite hitting a 3-week high at 8.27 euro during the day, the EUA Dec15 got under pressure Wednesday afternoon. When it reached the 20 and 30DMAs at 8.13 euro, the decline got faster and the price fell to a daily low at 8.06 euro. Interestingly this was the intraday low from Monday as well which means that there might be a support level here halting the price from further losses. At 8.05 euro we can find a Marubozu line as well.

On a boring day, the EUA Dec15 moved in a narrow range of 4 cents on Thursday and closed marginally higher than on Wednesday.

Friday, however, saw a nice rally after the German auction cleared several cents above the secondary market price. The price broke from the declining trend channel and might have kicked out many short positions which resulted in another rally in the afternoon. Also those market participants who were waiting for to be able to purchase the allowances below 8.00 euro might have executed some "panic purchases".

As for this week, the outlook is somewhat rosier after the break-out from the declining trend channel. The first resistance level to be tested will be Friday's high at 8.38 euro. If the price breaks this level, the 2015 high at 8.43 euro could be retested. After this resistance the space is open for further gains, but the 8.50 euro level might halt the rally. The RSI at 60 now allows for further gains.

On the other hand, it might be worth mentioning that after a short-lived rally in the first half of last week, the 30DMA halted gains in the front year German power which turned back south again. The pattern is similar in the European 2016 gas price as well. These, combined with the weekly auction volume, which will be some 3 million higher than last week, might exercise a pressure on the price of the benchmark carbon contract this week. 

To the downside, the moving averages around 8.15 euro form the strongest support levels. Below that 8.06 euro stopped the price twice last week and is also a Fibonacci level. 

Source: Bloomberg L.P.

Monday, October 5, 2015

EUA Dec15: Record low coal prices and window dressing supported the price last week

Thanks to the German front year power hitting a new record low, the EUA Dec15 fell to a new six week low at 7.90 euro on Monday. At this level it was stopped by the lower Bollinger band.

Thanks to a negative opening in the German front year power, the benchmark carbon market slipped to 7.87 euro early on Tuesday to recover after the auction. After three days of falling prices we saw a correction in the EUA Dec15 Tuesday afternoon (+0.8% d/d) supported by slightly higher power prices in Western Europe.

The EUA Dec15 rallied 2.1% on Wednesday and closed above the 50, 30 and 20DMAs, which is a positive sign. The price opened above the support levels and jumped to 8.23 euro, a 9-day high. The MACD turned to the north, but still remained below the signal curve and the zero line. Wednesday was the last day of the month and also of the quarter which in financial markets is often accompanied by a phenomenon called "window dressing" meaning that holders of long positions would like to see higher prices of their assets.

The relative strength index, however, remained in the neutral territory. The question was if the price would be strong enough to break out from the mid-term declining trend channel that built up since the 2015 high hit in August.

Although it jumped to an intraday high at 8.25 euro on Thursday, the EUA Dec15 was not able to maintain gains and closed the day at 8.17 euro, just 2 cents higher than Wednesday’s settlement. Thursday’s candle with a long upper shadow and a small body without a lower shadow is called a "shooting star" and generally indicates some bearishness in the market.

Should this signal be correct, the losses might be limited by the moving averages. The 20DMA is at 8.14 euro, the 30DMA at 8.13 euro and the 50DMA at 8.11 euro. Below the moving averages we can find a Marubozu line at 8.05 euro (from last Wednesday's candle). Bears might receive some motivation from overall declining power prices and the lack of any political announcements regarding the reform of the EU ETS in the post-2020 period.

On the other hand, the 20DMA climbed above the 30DMA which is generally a bullish sign. This is complemented by the MACD which just climbed above the signal curve and the zero line this morning when jumping front year German power prices helped the EUA Dec15 in climbing higher as well.

Should the rally from end of September continue (for example due a rebound in the German front year power price or the reduced auction volume this week), the price has to break last Thursday’s high at 8.25 euro first before it could retest the September high at 8.35 euro. Although the long term increasing trend channel remained unhurt, the price is moving in a slightly declining trend channel since the 2015 high hit in August. Should the price of the benchmark carbon contract jump above 8.25 euro, it would also mean that it left this declining trend channel.

Source: Bloomberg L.P.