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.

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