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.

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