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.

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