Monday, December 28, 2015

EUA Dec16: Quiet week expected

After a weak start, the EUA Dec16 started to rally Monday noon. The contract closed 13 cents (+1.6%) above the settlement price of the Friday before. The rally accelerated in the afternoon when the German front year power climbed into positive territory and the euro appreciated 0.4% versus the US dollar.

The force remained with carbon on Tuesday as well. The price jumped to 8.36 euro in the morning hours to move sideways in a 2 cents range in the afternoon amid thin liquidity. The bellwether contract closed the session at 8.32 euro, some 0.06 euro higher compared to the previous close. A total of 6.1 million allowances changed hands on ICE in the benchmark contract of which 900,000 where block trades. The price was approaching the 100DMA at 8.37 euro and the 20DMA at 8.41 euro, but didn’t reach them.

The dark side took over the trading floor on Wednesday, when less than 4 million allowances traded and the EUA Dec16 declined 5 cents in a daily comparison. Despite hitting a new local high at 8.38 euro in the morning, the price was not able to maintain its gains. The benchmark closed 3 cents below Tuesday’s settlement price.

The price moved in a narrow range of 11 cents between 8.21 and 8.32 euro on Thursday. The traded volume of less than 2 million allowances suggested that most of the market participants were busy with decorating the Christmas tree instead of trading carbon.

With the holiday season continuing this week as well, the price might consolidate around current levels. Our base range of 8.00-8.40 euro might seems wider than usual, but the volatility might increase in a thin market when it’s easy to swing the price even with a small volume. The MACD is in the negative territory, but seems to be crossing the signal curve, which would be a positive sign. 

The RSI at 43 is in neutral territory.

Support levels are seen at the 200DMA (7.95 euro), the lower Bollinger band (8.01 euro) and a Fibonacci level at 8.20 euro.

There is a strong resistance building at 8.40 euro with the 20 and 100DMAs waiting there. This level is followed by a Fibonacci level at 8.55 euro.

Source: Bloomberg L.P.

Monday, December 21, 2015

EUA Dec16: MACD slipped into negative territory

Despite falling to a new two-month low after the weak auction result, the EUA Dec16 rebounded Monday afternoon. The RSI, however, remained below the crucial 30 level, suggesting a potential bullish reversal. In addition, the price was still below the lower Bollinger band at 8.32 euro.

After some initial hesitation the EUA Dec16 climbed higher in Tuesday’s trading and finished 1.5% above Monday’s settlement price. The price closed above the Fibonacci level at 8.25 euro, but below the next Fibonacci level at 8.34 euro and the 100DMA at 8.36 euro. Despite the appreciation, the price was just slightly above the lower Bollinger band

After a relatively calm day, investors started to exit positions in the last 40 minutes of trading on Wednesday. Nobody wanted to caught in a position before the rate decision of the US Federal Reserve which was expected to increase the volatility in the EUR/USD and through the FX also in commodity prices and by the end of the day in the price of EUA.  As a consequence, the 20DMA crossed the 30DMA providing a bearish signal.

Thursday morning the EUA Dec16 reacted with declines on the Fed decision as the stronger dollar pushed the dark spread lower. The last auction of the year, however, brought buyers to the market. The benchmark contract reversed its direction and jumped to a daily high at 8.24 euro. The happiness about the strong auction though vanished by the end of the trading.

The benchmark contract moved in an intraday range f 18 cents on Friday and remained under pressure. Brent falling to new record low pushed other commodities down as well. The price fell to the lower Bollinger band at 8.05 euro first and recovered by the end of the day to close just one cent below the settlement price from the Friday before.

The technical picture looks gloomy with the MACD in the negative territory and the 200DMA luring the price to 7.92 euro. The RSI at 33 points, however, suggests that the price is close to oversold territory and might climb higher. Should the lack of auctions support the price, the 100DMA at 8.37 euro might stand in the way of appreciation.

Source: Bloomberg L. P.

Monday, December 14, 2015

EUA price fell below the 2015 increasing trend line

After a weak start the EUA Dec15 was falling continuously last Monday and lost 1.3%. It not only fell below the 50DMA, a long time support, but fell and closed below last Thursday’s low at 8.42, confirming the short term bearish trend that started 25 November.

Despite a positive start the EUA Dec15 fell to a new 3-week low Tuesday. Traders were especially disappointed by the auction that cleared 7 cents below the secondary market price and had a very low cover ratio. By the end of the day, however, the benchmark contract recovered and closed at Monday’s settlement price.

The EUA price ended relatively unchanged Wednesday as the market followed the German power price lower initially and then back up toward the end of the day. With the German power opening lower and pushing the dark spread into red, the EUA Dec15 fell sharply in the morning and hit a daily low at 8.29 euro, just one cent above the November low at 8.28 euro.

After three days of new daily lows hit, Thursday could be no exception. The price couldn’t even reach Wednesday's closing level.

The Armageddon came on Friday, when the price broke all important support levels, including the 2015 increasing trend channel and the psychologically important 8.00 level. The price lost 3.5% in a daily comparison.

The relative strength index fell below 30, increasing the likelihood of a correction this week. The correction might be supported by the success of the international negotiations in Paris and the vanishing EUA auctions.

Should the global sell-off, however, continue and the price fall below 8 euro again, the price might find its first support from at Friday’s low or at the 200DMA. As the carbon was not the only asset sold off last week (the price of Brent fell by 12%, the German DAX index lost 4% last week) we tend to think that the weak performance of the EUA contract was the result of a global sell-off before the rate setting meeting of the US Federal Reserve this week. Until the decision of the American central bankers this Wednesday, markets (also carbon) might remain under pressure.

The last trading day of the EUA Dec15 contract is 14 December (today). After this day the EUA Dec16 contract becomes the new benchmark. The EUA Dec16 settled 7 cents above the EUA Dec15 last Friday and its 200DMA is at 7.89 euro.

Source: Bloomberg L.P.

Monday, December 7, 2015

EUA Dec15 step dancing on the 50DMA

Last Monday’s doji candle showed hesitation of the market which direction to take. The 8.50 euro seemed to be a good support level with two Fibonacci levels at 8.55 and 8.50 euro, the 30DMA at 8.53 euro and the 20DMA at 8.51 euro. There were, however, some warning signals. In addition to the 30/20DMA cross and the tweezer top from the week before, the MACD fell below the signal curve and the price traded outside the short term increasing trend channel, giving another bearish sign.

The EUA Dec15 formed another doji candle on Tuesday confirming the uncertainty of market participants.

Wednesday until noon time the EUA Dec15 moved in a narrow range of 4 cents. The support at 8.50 euro proved strong again, but sellers took over the trading floor (in all markets, actually) and pushed the price to 8.47 euro, two cents below Tuesday’s low. By the end of the day the price was not able to climb back higher and closed just one cent above the daily low.

The benchmark carbon contract rebounded from Wednesday’s losses Thursday on the back of a stronger euro making burning coal more profitable for power plants. The carbon price started the day with a downward move hitting an intraday low at 8.42 euro (the 50DMA exactly) before trickling up. The bellwether contract closed the session at 8.59 euro, up 0.11 cents or more than 1% from the previous close. Thursday’s candlestick in combination with Wednesday’s candle formed a ’bullish engulfing pattern’, providing some hope for the bulls.

Despite early optimism on Friday, the price closed 0.8% below Thursday’s settlement price. The depreciation accelerated especially in the final minutes of trading leaving no doubt that the Thursday rally was a one-off that left the price in the short term declining trend channel that started 25 November.

The first support for the declining EUA Dec15 price is the 50DMA at 8.44 euro. This moving average halted the price from falling since September, but has been tested several times recently and the theory of technical analysis says, the more a level gets tested the weaker it becomes. Below this level the November low at 8.28 euro is the next support.

Should declining auction volumes support the price (this is the last week with a complete auction calendar), it has to break above 8.50 euro first to be able to retest the 2015 high at 8.71 euro. All in all, we are more bearish for this week as the chart doesn’t show any sign of a turn.

Source: Bloomberg L.P.