Monday, March 30, 2015

EUA Dec15 lost 4% w/w

Despite some intraday volatility due to power prices and the dark spread the benchmark contract closed at the same level on the first two days of the week as traders were waiting for the outcome of the COREPER meeting on Wednesday where member state ambassadors tried to draft a common position on the MSR. 

As the first round of the meeting in the morning was not successful, the price fell  below the 20DMA to 6.77 euro. The benchmark contract, however, recovered in the afternoon on hopes that the second round of negotiations would bring some results. 

The adopted proposal is not really ambitious with a start date in 2021 and only the back-loaded allowances put into the reserve. Consequently, the price fell to 6.89 euro in Thursday’s opening, but recovered after traders realised that what will be adopted finally in the trilogue can be this or stronger. Especially, as Germany came out with a statement almost immediately after the COREPER decision emphasising its support for a more ambitious MSR. The price jumped to a 1 month high in the first hour of Thursday’s trading. 

The price, however, couldn't maintain its gains and fell on Friday below the 20DMA and closed just one cent above the daily low, worsening the technical picture.

Uncertainty remains in the market about how the final design of the MSR would look like and when the decision would be adopted. The MACD is still in the negative and RSI (at 46) in the neutral territory.

In addition, this week's calendar is full of events that might have an effect on the carbon price and increase its volatility. 

The first trilogue meeting takes place on Monday (today). The market might move sideways until the first headlines about the meeting are released as the positions of the Council and the Parliament are quite far away from each other. (The Commission said earlier that it is ready to support an earlier start, if there is enough support for it in the Parliament.)

CP1 Kyoto credits lose their eligibility in the EU ETS on 1st April, Tuesday is the last day to exchange them for EUAs for those companies which still have spare linking capacity. This might marginally decrease the demand for EUAs on the first two days of the week.

The European Commission will publish the updated status table on the 2015 free allocation Tuesday evening. Some 200 million allowances still have to be distributed by the member states before the end of April which would increase the supply of EUAs.

2014 verified emissions data will be published on Wednesday. Preliminary figures from member states and the biggest participants of the EU ETS (RWE, EON, Drax etc.) suggest that we have to expect a significant decline in the emissions. Market consensus expects a 5.5% fall compared to 2013. Should emissions have fallen more than this, the price might react negatively.

The only factor that seemed to be supportive for the EUA price this morning was the fact that auction supply would be cut by more than 3 million this week as the German auction falls out on Good Friday.

Unless the first trilogue brings a surprisingly good result, the price might trade below 7 euro this week. In the case the price turns south, the first support would be the 200DMA 6.65 euro, followed by the lower Bollinger band at 6.46 euro and the 2015 low at 6.28 euro.

In a positive scenario, the benchmark contract has to break first the 20 and 30DMAs at 6.83 and 7.02 euro, respectively, before retesting last week's high at 7.29 euro.

Due to the above, however, we give a higher probability to the negative scenario.

Source: Bloomberg Finance L.P.

Monday, March 23, 2015

EUA Dec15: 9% rally within a week

The benchmark carbon contract gained almost 9% last week on plans of forcing outdated German power plants to purchase more EUAs and maybe also some speculation on the positive outcome of this week's COREPER meeting.

Last Monday the EUA Dec15 spent the day in a narrow range between 6.41-6.51 euro as traders were waiting for headlines about the Working Party meeting discussing the MSR. The price touched the 200DMA, but didn’t climb above it only on Tuesday despite news about a strong support for a 2021 MSR start date in the Council. 

Tuesday's rally kept the price above the 200DMA at 6.60 euro and the appreciation continued on Wednesday as well. The short term declining trend which started after the ENVI vote end of February seemed to be broken, but the price didn’t climb back above the long-term increasing trend lines yet. 

The price took a break on Thursday after newswires reported that Finland wouldn't support an early start of the MSR and Romania is sticking to the revenues it could make from auctioning the back-loaded allowances.

The 200DMA at 6.62 euro was tested Friday morning, but with a surprisingly strong impetus the price turned back and after breaking the 20DMA it jumped back above 7.00. The spectacular rally - mainly motivated by a leaked German plan which would force old power plants to purchase more EUAs - lifted the price to the 30DMA at 7.10 euro, but this resistance level halted further gains. By the end of the day the benchmark contract however could maintain almost all the gains, and the rally was enough to lift the MACD above the signal line and give a buy signal.

The relative strength index is at 52, still in neutral territory which leaves the room open for further gains, although the week might start with some correction after the hefty gains on Friday. Also, the 30DMA at 7.10 might need more attempts to be broken.

On the other hand, we might see the usual pattern repeated in market buying the rumour and selling the fact before and after the COREPER meeting of ambassadors on Wednesday which might end with an official Council position on the MSR and the start of trilogue negotiations.

The other possible scenario is that traders adopt a wait and see mood before the meeting as country opinions seem to diverge more than it was the case among the political groups before the ENVI vote when it was clear that there was a broad support for a more ambitious design of the MSR. In this case the 200DMA and the 30DMA might indicate the ranges of the trading band.

The first support level is the 20DMA which is also a Fibonacci retracement level at 6.90 euro.The next support is of course the 200DMA which is a Fibonacci level and last Friday's low as well now at 6.63 euro. This level is followed by a weaker support level near 6.40 euro which was a local low on several days already. If no agreement can be reached on Wednesday, the price might retest also the 2015 low at 6.28 euro.

In a positive scenario, the benchmark contract breaks the 30DMA at 7.10 euro and the Fibonacci level at 7.27 euro might be no big hurdle either and the price might rally until 7.45-7.50 euro where the upper Bollinger band might limit gains.

Source: Bloomberg Finance L.P.

Monday, March 16, 2015

EUA Dec15: Council negotiations about the MSR disappoint market

The first day of the week didn’t bring any new lows as traders were waiting for the outcome of the WP meeting on Tuesday. Disappointing news from the meeting, however, sent the EUA Dec15 to the new 2015 low we forecast last week. 

The 6.61 euro was close to the 200DMA which managed to turn the price back upwards. In the next two days the benchmark contract moved sideways in a range between 6.66 and 6.90 euro mainly following the price of German front year power until the news about the proposal of a 2021 start of the MSR which made the EUA Dec15 fall below the 200DMA, to a new 2015 low at 6.43 euro. With this move the price fell below the increasing trend line which started last autumn, and the decline continued Friday morning as well to 6.28 euro.

The benchmark contract seems to have fallen into a vacuum without major support until 5.56 euro, the low from last October. There is only one local low at 5.95 euro and a Fibonacci retracement level at 6.11 euro before that level.

There are two factors which could support the price this week:

(1) any positive news that suggest a more ambitious MSR design than the last proposal of Latvia and
(2) the relative strength index (RSI) is close to oversold territory which might be a signal for a correction.

The first major resistance level the price has to overcome is the 200DMA at 6.60 euro.

Monday, March 9, 2015

The EUA Dec15 hit a new 2015 low. More to come?

Despite a brief correction on the Friday before, the downward movement - which started after the ENVI vote on 24th February - continued last Monday and the two candles together formed a bearish engulfing. 

The 100DMA held the EUA Dec15 on Monday, but the price opened below this level on the next day and didn’t climb back above, making it a good resistance for the future. The MACD slipped below the zero line on Tuesday. 

The European Commission published its first status table of the 2015 free allocation Tuesday evening showing that 63% of the total has been distributed already. The price hit a new 2015 low at 6.66 euro on Wednesday morning falling briefly below the lower Bollinger band at 6.69 euro, but recovered during the day and closed above 7 euro. The price was supported by optimistic comments about the MSR from an official from DG Clima and German economy minister Gabriel. 

The two candles from Tuesday and Wednesday formed a bullish engulfing which resulted a false signal in Thursday’s sell-off when the price fell from 7.08 euro in the opening to 6.80 euro by the end of the day. The first reading of the Latvian presidency's proposal regarding the MSR was negative not only because it contains a 2019 start date, but mainly because the draft doesn't contain any indication about the future of unallocated allowances.

Seems like March will be  a busy month with a split Council to come up with a consensus about the MSR, free allocation to continues and verified emissions to be published. Although we realize the strong support for the reform of the EU ETS, at the moment seems to us that all these factors might exercise a downward pressure on the price.

A test of the 200DMA at 6.56 euro (and a new 2015 low) might by in the cards, as the RSI didn’t reach the oversold territory yet, but then a correction is expected which could lift the price above 7 euro again.

Monday, March 2, 2015

EUA Dec15: The ENVI vote didn't bring any new 2015 high

Rumours about a possible compromise between the two major political groups in the ENVI (EPP and S&D) helped the EUA Dec15 to jump close to the 2015 high of 7.90 euro in the first two days of last week, but the price didn't hit a new 2015 high and profit taking started Tuesday afternoon already. 

On Thursday, when most of the installations received their free allowances for 2015 already the benchmark contract fell below the 20 and 30DMAs and couldn't climb back by the end of the day either. On the same day the MACD crossed the signal line, further strengthening the bearish pressure on the price. News about eight CEE countries opposing (and possibly having enough votes to block) the early implementation of the market stability reserve was another factors pushing the price downwards.

After three days of decline we could see a correction on Friday, but the EUA Dec15 remained below the most important resistance levels.

The base range for this week might be 6.67 and 7.50 euro, as further volumes of free allocation might push the price down to 6.80 euro, a good support in the second half of January and February as well. We connected most of the local authorities regarding the 2015 free allocation and we received the feedback that most of them did everything to transfer the allowances. (The exceptions are countries where the registry is waiting for the authorization of the competent ministry, like Poland.)

Should one of the eight countries opposing the early implementation of the MSR (Poland, Cyprus, Bulgaria, Croatia, Czech Republic, Hungary, Lithuania and Romania) apply for a derogation from the Lisbon Treaty and have this way enough votes to block the draft report of the ENVI, the benchmark contract could slip further down to 6.67 euro, the 2015 low.

 Source: Bloomberg Finance L.P.