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.

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