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.

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