Monday, November 30, 2015

EUA Dec15: At the edge of the trend channel

The EUA Dec15 contract closed higher Monday, as falling coal prices caused clean dark spreads to widen. Volume was reasonably high with 15.1 million, compared to a 30-day average of 12.8 million. The technical signals were contradictory. Bloomberg's trendstall indicator forecast falling prices, but the two last candles formed a bullish harami.

The price broke the resistance level at 8.64 euro easily on Tuesday. The upward move was accompanied by a strong trading volume. There was, however, one warning signal: thanks to the mainly sideways movement in the last six days, the 20DMA became flat and the 30DMA reached it from below.

The benchmark carbon contract took a dip on Wednesday, after the UK auctioned 3.1 million allowances at a clearing price below market and a bid-to-cover ratio of 2.01. However, the price recovered in the afternoon, following German power prices and finished the session at 8.63 euro, just 0.03 euro lower compared to Tuesday’s close. The traded volume remained below the monthly average possibly also reflecting markets preparing for the holidays.

Since mid-November the price moves in a range between 8.47 and 8.67 euro and Thursday was no exception. The low volumes because of the US Thanksgiving holiday increased the volatility of the price, but it didn’t leave the range mentioned. The hanging man formation from Wednesday and the 30DMA crossing the 20DMA provided slightly bearish signals. As a consequence, the EUA Dec15 was not able to hit a new local high. Disappointed traders sold off the benchmark carbon contract in the last hour of trading. The price tried to climb higher on Friday, but it could only reach Thursday’s opening at 8.60 euro.

The lower edge of the increasing trend channel halted the depreciation of the price and there is a chance that the price turns back higher towards the upper edge of the channel. 

There will be only four auctions this week with an auction volume of less than 12 million. In addition, the disappearing auction supply in the second half of December might support the price this week already.

The first resistance level is last week’s high at 8.67 euro, followed by the 2015 high at 8.71 euro. 

The 20DMA crossing the 30DMA and the candles from last week, however, warn traders about possible losses. Should the euro weaken further versus the US dollar, the dark spread would worsen and utilities would find less incentives to burn coal. The European Central Bank holds a rate setting meeting on Thursday. Although the market does not expect any changes in the current rate of 0.05%, the recent comment of the central bank officials increase the likelihood of further monetary easing. Should the ECB announce new tools, the first effect might be the weakening of the euro.

To the downside the first support is around 8.50 euro, followed by the 50DMA at 8.38 euro. 

Source: Bloomberg L.P.

Monday, November 23, 2015

EUA Dec15: Breaking cautiously from the declining trend channel

The benchmark carbon contract broke from the short term declining trend channel that started on the last day of October last Monday. The fall on Friday and the flat MACD, however, increase the uncertainty if the recent gains can be maintained.

Despite some hesitation in the morning, the EUA Dec15 jumped to 8.50 euro on the first day of the week. The appreciation was helped by the German front year power opening almost 1% higher and a strong auction that cleared at a 2 cents premium to the secondary market price. The price hit a weekly high at 8.54 euro before closing and gained 1.7% compared to the settlement the Friday before.

The rally continued Tuesday when markets shrugged off risk aversion from the terror attacks in Paris and markets rallied around the world (with the German DAX index gaining more than 2% and the front year German power hitting 29 EUR/MWh again). The EUA Dec15 climbed to a Fibonacci level at 8.61 euro and kept gains by the end of the day.

After two days rallying the price could still hit a new 3-week high at 8.64 euro on Wednesday, but it was not able to keep its gains and fell to the 20DMA.

The pause was followed by another day of smaller gains on Thursday, although the volume was the lowest in two weeks. The price climbed back to the weekly high at 8.64 euro, but was not able to break above this level.

Traders took profit on Friday, when the price lost 1.4% compared to Thursday’s settlement. The 20DMA at 8.52 euro could not halt losses, just the 30DMA at 8.49 euro was able to do so.

Despite the sell-off on Friday, the short-, mid and long-term increasing trends are still unhurt. The MACD crossing the signal curve last week is another reason to be optimistic. In a positive scenario, there are not many resistance levels before the price could retest the 2015 high at 8.71 euro. The sell-off on Friday, however, is a warning signal. Should the German power return into its declining trend and the euro weaken further, the price could fall to the first support level at 8.50 euro (with two Fibonacci levels and two moving averages near there). In a negative scenario, the price could retest the 50DMA at 8.34 euro that stopped the price twice in October and in November.

Source: Bloomberg L.P.

Monday, November 16, 2015

Pressured by lower German power prices and dark spread, the EUA Dec15 fell to a 3-week low last Monday. The price continued its decline Tuesday morning as well, and hit a new 4-week low  at 8.28 euro. At this point, however, there were many supports: the 50DMA, a Fibonacci level and the lower edge of the declining trend channel. In addition, the German front year power price turned higher (for the first time in five days) and the European 2016 coal price fell to a record low. All these factors helped the benchmark carbon contract in gaining 1.4% on Tuesday and in climbing back above the next Fibonacci level and the 30DMA at 8.39 euro. The price closed at 8.44 euro.

The appreciation accelerated Wednesday morning, when the price reached the next Fibonacci level at 8.51 euro. The weak auction result and falling German power prices, however, changed the direction of the benchmark carbon contract which fell to an intraday low at 8.37 euro and closed unchanged compared to Tuesday’s settlement price.

The German front year power price falling to a new record low exercised a pressure on the EUA Dec15 on Thursday. The price fell to a daily low at 8.32 euro, but the 50DMA at 8.30 euro limited further losses. Despite being on a roller-coaster the whole day long, the EUA Dec15 remained in the usual ranges: in the November declining trend channel and between the 50 and 20DMAs.

The ranges mentioned above kept the price on Friday as well. The EUA Dec15 moved in a narrow range of 8 cents during the day.

The price was not able to break out from the declining trend channel last week and it might remain under pressure this week as well due to the abundant supply of allowances, a weak energy mix and a general risk-off mood in the markets after the terror attacks in Paris last Friday.

The base range for this week could be between the 50 and 20DMAs, at 8.31 euro and 8.49 euro, respectively. Should the price break out of this range, the next resistance is the 2015 high at 8.71 euro. The closest support to the 50DMA is a Fibonacci level at 8.19 euro.

Source: Bloomberg L.P. 

Monday, November 9, 2015

EUA Dec15: ECJ opinion might increase volatility this week

After a week opening in the German front year power, the EUA Dec15 fell to 8.52 euro Monday morning. Recovering power prices kept the EUA price stable during the rest of the day. The bullish trend since end September, however, was broken and with a Hanging man’ candlestick, the technical picture has turned bearish for carbon.

After falling from the short term increasing trend channel that started on 29th September, it didn't take long for the EUA Dec15 to break the Fibonacci level at 8.51 euro on Tuesday. The benchmark contract dropped to the 20DMA at 8.45 euro at noon time and extended losses later to 8.39 euro, a Fibonacci level.

Despite the lack of a UK auction on Wednesday, the fall of the EUA Dec15 seemed unstoppable. The benchmark contract fell to 8.36 euro in the afternoon when the front year German power slipped into the negative territory and the EUR/USD hit a new 3-month low.

Although the technical picture looked bearish, the benchmark carbon contract took a break on Thursday and moved in a narrow range of 10 cents between 8.38 and 8.48 euro.

The price opened around Thursday’s closing level on Friday, but the weak German EUA auction result pushed it lower before noon time. The benchmark contract received another hit in the afternoon, when better than expected US employment data pushed the EUR/USD to a 6-month low. The price fell briefly below to a 3-week low at 8.35 euro, and closed just 6 cents higher, at 8.41 euro.

In the lack of further news about the reform of the EU ETS, the EUA Dec15 takes direction from the energy mix where both the German power and the corresponding dark spread perform weak. This week the decision of the European Court of Justice about the legality of the cross sectoral correction factor might increase the volatility in the carbon. The opinion is expected to be published on Thursday.

Should the negative sentiment prevail (auction volumes increase by 3 million in a weekly comparison and weak performance of the German front year power and the dark spread), there is a strong support around 8.30 euro with several technical indicators meeting near there (a Fibonacci level at 8.39 euro, the 30DMA at 8.37 euro, a Fibonacci level at 8.29 euro, the 50DMA at 8.28 euro). Below these levels a Fibonacci level at 8.19 euro and local lows near 8.07 euro could halt the depreciation.

Key resistance levels are near 8.50 euro (the 20DMA at 8.49 euro and a Fibonacci level at 8.51 euro) before the price could retest the 2015 high at 8.71 euro.

Source: Bloomberg L.P.

Monday, November 2, 2015

EUA Dec15: German power prices might provide direction to the price this week

After the rally on the Friday before the EUA Dec15 took a break on Monday. The middle point of Friday's candle at 8.55 euro served as a good support level during the day. The meeting of the EU environment ministers failed to provide any direction to the price, but bulls woke up in the last hour of trading and pulled the price to a new three year high at 8.67 euro.

After hitting a new three year high at 8.70 euro in the morning (and lifting the RSI to 71), the benchmark carbon contract retreated to test the same Marubozu line at 8.55 once again on Tuesday after the front year German power slipped into red and the euro lost its gains versus the USD.

Monday’s and Tuesday’s candles together formed a bearish engulfing which defined the mood in Wednesday’s opening. During the session the EUA Dec15 continued to correct from the three year high reached earlier during the week. Up to now the upwards pointing support line, intact since 29 September, was not broken.

The price moved in a narrow range of 9 cents in the first half of Thursday. The Marubozu line at 8.55 euro worked as a good support again. The price started appreciating in the afternoon in tandem with the front year German power (+1.5% d/d) and the corresponding dark spread (+8.8% d/d) and hit a new three year high at 8.71 euro.

The price, however, couldn’t reach a new high on Friday and fell below below the Marubozu line this morning. Other warning signal is that the price also fell from the increasing trend channel that started on 29th September.

The benchmark carbon contract showed a surprisingly high correlation with the German front year base load power price recently. As market does not expect any major announcements about the EU ETS reform in the coming weeks, the correlation might continue in November as well. Since the German power price hit a record low at 28.58 EUR/MWh on 22nd October, it jumped by almost 4% and got close to the psychologically important 30 EUR/MWh level. It remains to be seen if the price of German front year power is able to maintain its momentum in the next days.

The low volumes in the EUA Dec15 on the last two days of the last week might be a sign that the benchmark carbon contract was near to overbought territory, and might be an indication that some consolidation is due. At the same time the relative strength index (RSI) of the front year German power price reached 61, a level last seen in July.

In the case of a correction, the first support level is the Marubozu line at 8.55 euro. This is followed by the Fibonacci level at 8.51 euro, the 20DMA at 8.44 euro and the 30DMA at 8.32 euro. 

Should the rally continue, the resistance levels are now the 2015 high at 8.71 euro, the upper Bollinger band at 8.76 euro and the lower edge of the gap from 2012 at 8.85 euro.

Source: Bloomberg L.P.