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.

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