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.

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