Monday, September 28, 2015

EUA Dec15 under pressure

The negative trend in the German front year power and the weakening of the euro versus the US dollar put a pressure on the EUA Dec15 last week. In addition, the rapporteur of the post-2020 EU ETS reforms Ian Duncan saying that his report on the draft won't be ready before the second quarter of 2016, increased fears about prolonged uncertainty in the carbon market and had an additional negative effect on the carbon price.

Continuing the negative mood from the Friday before the EUA Dec15 opened last week with a one cent gap down. The price fell to a daily low of 8.06 euro, but recovered after a strong auction result. The weakening of the euro, however, pushed the price to a 2-week low at 7.98 euro in the last hour of trading. The lower Bollinger band stopped further depreciation here.

The lower Bollinger band halted further declines in the EUA Dec15 and the price consolidated above 8 euro on Tuesday. The benchmark contract consolidated above 8.00 euro supported by the European coal prices falling to a record low. The price, however, traded in a very narrow range of 7 cents.

Helped by higher German power prices and a strong dark spread, the EUA Dec15 climbed higher on Wednesday and gained 5 cents (+0.6% d/d). Although it climbed above the 50DMA during the day it was not able to close above this level. At the same time the MACD slipped below the zero line, providing another bearish signal. The 50DMA at 8.10 euro halted further gains Thursday morning as well.

With a significant volume, but low intraday volatility the EUA Dec15 fell to 8.01 euro on Thursday (-0.9% d/d). While the price was moving sideways, the bearish signals were convening. 

  • The MACD slipped below the zero line.
  • The 20DMA is below the 30DMA. 
  • There is a bearish engulfing from Thursday/Friday before and 
  • last Thursday’s candle also seems to have formed a bearish engulfing with Wednesday’s candle.

With a strong dollar pushing the German dark spread below 3 euro, the EUA Dec15 hit a new 3 week low at 7.96 euro on Friday.

The EUA Dec15 moved mainly sideways around 8.00 euro last week. In the lack of any development regarding the post-2020 EU ETS reforms and the German front year power in a declining trend, the benchmark carbon contract might slip further. 

We can find support levels at 7.94 (lower Bollinger band and a Marubozu line), at 7.92 (a Fibonacci level) and at 7.76 euro (August low).

In the case of a correction the price has to break the moving averages first (50DMA at 8.10, 20DMA at 8.14 and 30DMA at 8.16 euro) to be able to retest former highs.

Source: Bloomberg L.P.

Monday, September 21, 2015

EUA Dec15: Bearish signals might make traders cautious

With most of the market participants waiting for the rate decision of the US Federal Reserve, the carbon market moved in a very narrow range of 7 cents on Monday. Daily traded volume of less than 4 million also reflected that many traders opted for staying at the side lines of the market. All in all, the benchmark contract closed 3 cents lower than last Friday, confirming the signal the bearish engulfing from previous week gave. In addition, the MACD slipped below the signal curve, adding bearish sentiment.

Falling German and Polish power prices, worse than expected German ZEW figures and a weak auction result pushed the benchmark carbon contract below the 20DMA on Tuesday. The price closed 6 cents or 0.7% below Monday’s settlement price.

Wednesday started in a positive mood after the appointment of Ian Duncan as rapporteur for the post-2020 EU ETS reforms and the front year German power climbing slightly higher. The strong auction result and a surprising rally in oil prices in the afternoon pulled the price to 8.27 euro. The settlement price of 8.24 euro was 0.7% higher than on Tuesday.

Thanks to the three black candles (days with declining prices), however, the 30DMA approached the 20DMA and reached it on Thursday morning, to provide another bearish sign for the next days.

Thursday was one of the most boring days in the life of the EUA Dec15 with all market participants staying at the side-lines of the market before the rate decision of the Fed. The price moved in a narrow 8 cents range in the morning, but was totally flat in the afternoon.

Despite the adoption of the MSR by the EU Council on Friday, the EUA Dec15 was rather weak pressured by a sell-off in Europe (the German DAX index fell below the critical 10,000 points) after the Fed decision.

There are several bearish signals in the chart right now. 
  • There is a bearish engulfing from the 10th and 11th of August. 
  • MACD fell below the signal curve last Monday and
  • the 30DMA climbed above the 20DMA. 

Source: Bloomberg L.P.

Should there bearish signs prove corrects, the price will have to fight with the 50DMA first, at 8.08 euro. (This is happening this morning.) The next support level is the psychologically important 8.00 euro level and after that a local low at 7.95 euro and the August low at 7.76 euro.

One should, however, keep in mind that discussions about the reform of the EU ETS Directive after 2020 in the working group on the environment of the European Council will continue this week, which might provide a positive momentum to the price. In a positive scenario, the 30 and 20DMAs have to be retested at 8.19 and 8.17 euro, before climbing back to last week’s high at 8.29 euro.

Monday, September 14, 2015

EUA Dec15 broke out from the short term declining trend channel

The EUA Dec15 moved without any direction on Monday. Despite falling to 8.02 euro in the morning and after a weaker than expected auction result, the price recovered and closed at 8.09 euro, 1 cent below the settlement price the Friday before.

News about the restart of some coal fired power plants on Tuesday helped the benchmark carbon contract in climbing higher. The movement accelerated after a strong auction which cleared in line with the secondary market price (auctions generally clear at a certain discount compared to the secondary market price).

The EUA Dec15 jumped to the 20DMA at 8.18 euro on Tuesday afternoon. This was also the upper edge of the short term declining trend channel. Breaking this level improved the technical picture and opened the room for retesting earlier highs at 8.35 and 8.43 euro.

The appreciation might have happened too fast in a very short time (the intraday RSI reached 78 in the afternoon) which resulted in a correction Wednesday morning, but bulls took over the trading floor again after the EUAA auction and pulled the price to 8.30 euro, a level not seen since 26th August.

The benchmark carbon contract didn’t delay the retest and jumped to 8.35 euro level on Thursday, 
but after four white candles the EUA Dec15 took a break on Friday and didn’t climb higher than the weekly high. Although Thursday’s and Friday’s candles form a bearish engulfing, which might be a warning signal for this week's bulls, the price remained above the short term trend channel and the 20DMA.

With all financial markets and investors focusing on the rate decision of the US Federal Reserve on Thursday, we might see prices stabilizing at current levels and moving sideways in the first half of this week. 

Volatility might increase on Friday, when markets have the possibility to react on the US news and the MSR is expected to receive its final rubber stamp from the European Council.

Last week's break out from the short term declining trend channel bodes well for retesting the 2015 high at 8.43 euro, but in a negative scenario the moving averages could serve as good support levels (20DMA at 8.20 euro, 30DMA at 8.14 euro and 50DMA at 8.00 euro).

Source: Bloomberg L.P.

Monday, September 7, 2015

EUA Dec15: What could help the price break out from the declining trend channel?

Despite retesting the 20DMA last Monday, the EUA Dec15 was not able to maintain its gains and closed at 8.08 euro, 4 cents or 0.5% lower than Friday’s closing price. Although there were some bearish signals (the bearish engulfing from the week before and the MACD), the 8.00 euro level proved a good support.

After a false break out Tuesday morning, the EUA Dec15 fell below 8 euro after the announcement of the auction which cleared below at 7.98 euro, the lowest price since 11th August. The price recovered in the afternoon and closed at 8.02 euro, but still below the 20 and 30DMAs.

Despite the bearish technical signals, the benchmark carbon contract climbed higher and broke the 30DMA on Wednesday. The 20DMA at 8.15 euro was tested, but not broken.

The EUA Dec15 started Thursday with retesting the 20DMA at 8.15 euro, but after a weak auction which cleared some 6 cents below the secondary market price, it was not able to maintain its gains and fell to 8.05 euro at noon. Buyers, however invaded the trading floor in the afternoon pulling the price to 8.20 euro, a new weekly high. By hitting an intra-day high at 8.23 euro, the price reached the upper edge of the short term declining trend channel.

This upper edge of this declining trend channel limited further gains on Friday as well and reversed the price direction in the morning.

It has to be seen, if this week’s negotiations about the review of the EU ETS Directive would be able to compensate for the negative investor mood in the financial markets which led to a short-term declining trend channel on the chart of the EUA Dec15.

In order to break out from the short term declining trend channel, the price has to jump above the 20DMA at 8.18 euro. 

Should the price remain in the channel, the first support will be the 8.00 euro level which is not only psychologically important, but also close to a Fibonacci line at 8.02 euro. Should the price slip below 8.00 euro, last week's low at 7.95 euro and the 50DMA at 7.94 euro could be tested.

Source: Bloomberg L.P.