Monday, December 19, 2016

EUA Dec16: ENVI proposals and power prices lifted the price of allowances

The ambitious reform proposals adopted by the environment committee of the European Parliament and the higher German power prices (+8.9% w/w) lifted the price of the EUA Dec16 by 10.5% last week.
The agreement between OPEC and non-OPEC countries the previous Saturday to reduce oil production by an additional 558k barrels per day from January and the strong auction result gave wings to the EUA Dec16 on the first trading day of the last week. The price hit an intra-day maximum of 4.81 euro, a level last seen 30 November.
As the market participants were waiting for news from the ENVI negotiations, the EUA Dec16 moved in a tighter than usual daily range on Tuesday. Although it slipped to a daily minimum of 4.70 euro, it did not fall back into the declining trend channel from November. The increase in the afternoon, on the other hand, was capped by the 20DMA. The price closed at 4.79 euro, approximately at the middle of the daily range. The relatively strong price lifted the MACD above the signal curve on Tuesday, which was a bullish signal.
After the shadow rapporteurs of the post-2020 ETS reform reached a compromise Tuesday evening, the EUA Dec16 opened with a gap up Wednesday morning. The price jumped to an intraday high at 5.19 euro in the first minutes of trading (almost reaching the 200DMA), but retreated quickly to the 5 euro level. The cancelled UK auction pushed the benchmark contract to a daily minimum of 4.88 euro, but the shock didn’t last long and the price targeted the 5 euro level again in the afternoon. By the end of the day the price was at 5.01 euro, up 22 cents or more than 4% from Tuesday’s settlement price. The candle looked like a doji, indicating the hesitation of investors before the key vote in the environment committee of the European Parliament on the next day.
As the outcome of the ENVI vote did not cause major surprises, the benchmark carbon market remained stable around 5 euro on Thursday. The preference of a higher linear reduction factor lifted the price to an intra-day high of 5.14 euro. This was, however, still below the Wednesday high, because market participants are aware of the preference of the member states for a 2.2% linear reduction factor, as proposed in October 2014. The weak auction then pushed the price to a daily minimum at 4.83 euro. By the end of the day many investors decided to take profit and the EUA Dec16 lost 17 cents or 3.4%.
The depreciation continued on Friday to 4.57 euro. In the afternoon, however, bulls invaded the trading floor and lifted the price to 5.00 euro again.
The European member stated continue debating the reform of the EU ETS this week. They were challenged by the ambitious proposals of the MEPs in the environment committee. As a consequence, market might wait further for the final position of the European Council. (Although it was scheduled for 19 December). Any news from the negotiations in the Council can increase the price volatility this week as there are not many other events that could impact the carbon market.
The price of the allowances might be supported by the fact that there won't be any auctions this year anymore. Daily auctions will resume 9 January.
We expect the price to consolidate around 5 euro before the Christmas holidays.



 Source: Bloomberg L.P., ICE

Monday, December 12, 2016

EUA Dec16: ENVI vote to increase volatility this week

The benchmark carbon contract had a volatile week between 5-9 December and the aggregated volume was like in the time of compliance.
The price fell quickly below 4 euro on Monday. The benchmark carbon contract fell to a daily minimum of 3.97 euro, just 10 cents above the 2016 low before it recovered. By the end of the day, the EUA Dec16 reduced all its losses and closed 7 cents above the previous Friday’s settlement price.
The EUA Dec16 had another volatile day on Tuesday and moved in a range of 51 cents. The benchmark carbon contract had a weak start to the day and the weak energy mix exercised a pressure on it. The strong auction, however, helped the price to recover. In the last hour of trading, comments about a stricter MSR initiated a rally in the price which jumped to an intra-day maximum of 4.54 euro and finished the day with a gain of 3%.
Some late coming investors pulled the price to 4.62 euro Wednesday morning cheering about the prospect of an agreement in the ENVI committee. Falling power prices, however, dominated in the afternoon and pushed down the price to an intra-day minimum at 4.27 euro. The benchmark contract was not able to recover and closed just 3 cents above the daily minimum.
After a boring start the EUA Dec16 jumped up and down in tandem with the euro on the announcement of the ECB on Thursday. After hitting an intra-day low at 4.24 euro, the rally lifted the price to 4.65 euro and it remained in the positive territory until the market closed as many short positions might have been closed (+31 cents or 7%). Although 4.60 euro was a strong resistance in the recent days, the rally in the afternoon helped to form a bullish engulfing in the chart.
The price then hit a new December high on Friday at 4.78 euro due to some short covering early in the afternoon, but the closing was less ambitious as the price lost 15 cents in a daily comparison. 
This way the price retested the upper edge of the declining trend channel, but was not able to break above and reverse the trend. 
In the first half of last week the 20DMA slipped below the 200DMA (a bearish signal) and the price is still in a declining trend channel.
The main focus is on the vote in the environment committee of the European Parliament about the post-2020 reform of the EU ETS Thursday morning. 
Should the ENVI vote boost the price, the price might break out upwards from the channel. In a negative scenario the channel remains valid.
Another support might be the lack of auctions from next week. Daily EUA auctions will only resume 9 January.


Monday, December 5, 2016

EUA Dec16: Political uncertainty pushed prices lower by 14% last week

Uncertainty about the ENVI vote on the post-2020 reform of the EU ETS and about the Italian referendum pushed down the EUA Dec16 by 14% last week.
The news about the faster than expected reduction of coal fired capacities put the EUA Dec16 under pressure on Monday. The price fell continuously during the day and hit a daily minimum of 4.65 euro. By the end of the day the price reduced its losses and closed at 4.75 euro, a loss of 25 cents or 5% from Friday.
The EUA Dec16 hit another 2-month low on Tuesday on the possibility of a delayed ENVI vote, higher EU energy efficiency targets and pessimism about the OPEC meeting. The depreciation fastened and the price even fell from the declining trend channel. A local low near 4.40 halted the depreciation.
The benchmark carbon contract halted the downward move and was little changed on Wednesday as the 30% energy efficiency goal announced by the Commission seemed to be priced in. After the UK EUA auction cleared, the bellwether contract started to trickle up. Supported by rallying oil prices on the OPEC agreement, the EUA Dec16 price reached an intra-day high at 4.81 euro. The price slipped down from there and closed at 4.61 euro, up 2 cents day-on-day. 
The EUA Dec16 moved in a 5 cents range on Thursday. Despite the positive opening mood (4 cents above Wednesday’s settlement price), the price fell quickly to 4.45 euro in the morning. The strong auction result, however, reversed the price direction and lifted it to an intra-day maximum of 4.65 euro. The tweet in the afternoon about the uncertainty of the December ENVI vote by the rapporteur pushed the price lower again to a new daily minimum of 4.40 euro. The settlement price was just 6 cents higher. The last two candles of the chart formed a bearish engulfing (again) suggesting that the price might continue its declining path.
The bearish engulfing proved right, as the price slipped to 4.25 euro on Friday, a level not seen since 22 September. It closed the week just 5 cents higher, with a loss of 14%.
The declining trend got confirmed by the negative MACD, some bearish engulfings and the 20/30DMA cross recently. There is also a head-and-shoulders form in the chart. Should it prove right, it points to a support level at 4.10 euro. 
Considering the risk stemming from the events of this week (“no” majority in Italy, no ENVI vote etc.), the price might fall even below that level and retest the 2016 low at 3.87 euro.
In a positive scenario, the price might retest the upper edge of the declining trend channel near 5.00 euro. This might be a case, if the MEPs in the environment committee of the European Parliament adopt ambitious amendments to the post-2020 reform of the EU ETS. The relative strength index (RSI) slipped below 30 end of last week and the price trades at the lower Bollinger band, suggesting that a correction might be in the cards.



Source: Bloomberg L.P.

Monday, November 28, 2016

EUA Dec16: Sharp losses on bearish technicals

The weak energy complex pushed the EUA Dec16 down to a new local low at 5.31 euro on Monday. When the price fell below the support of 5.38 euro, the decline got faster as many stop-loss orders might have been triggered. The price, however, didn’t reach the 200DMA at 5.24 euro (also a Fibonacci level). A correction started in the afternoon and the price appreciation got faster when the news first appeared about the rapporteur of the post-2020 reforms to propose ambitious changes to the MSR. By the end of the day the losses have been reduced to 10 cents or 1.8% and the price returned into the comfort zone between 5.40 and 6.10 euro.
The benchmark carbon contract moved in a narrow range of 11 cents on Tuesday. The intra-day range was the narrowest since 13 September showing the hesitation of the price about which direction to take. The price closed just 3 cents higher (+0.5% d/d), but the decline of the last days pushed the MACD into negative territory, which is a bearish signal.
After opening 3 cents below Tuesday’s settlement price, the EUA Dec16 reached an intra-day high at 5.64 euro on Wednesday, before falling back to 5.35 euro in the afternoon on news about the restart of a 900MW French reactor.
Pushed down by a weak auction result and expensive coal, the benchmark carbon contract declined to an intra-day low at 5.21 euro on Thursday. By doing so the price fell below the 200DMA and a Fibonacci level. By the end the day the price was able to recover and closed at 5.36 euro, down by 4 cents or 0.7% only.
The negative signals (MACD below zero, price falling below the 200DMA) proved right and the EUA Dec16 dived below 5 euro on (Black) Friday to hit an intra-day low at 4.94 euro, a level last seen in September. By the end of the day it managed to climb back to 5 euro, but not above the 200DMA. The list of the negative signals has been expanded by another one: the 20DMA fell below the 30DMA.
Taking into consideration all the above, we expect the price to fall further, although the several meetings of this week represent a risk to the price that can result in a high volatility. 

The Council’s working party on the environment continues discussing the post-2020 reforms of Wednesday. Also the shadow rapporteurs of the ENVI committee will debate the same topic this week. Any leaked information from these meetings can increase the volatility of the EUA price.
The European Commission will present its energy union package, including proposals to update the energy efficiency and renewables directives to align  them with the 2030 climate and energy framework, as well as a proposal to redesign of EU's electricity market on Wednesday. Higher ambition in these fields would affect the carbon price negatively.
The OPEC meeting on Wednesday is not directly related to the carbon market, but as we could observe a high correlation between the two commodities, the outcome of the meeting in Vienna might also have an impact on the EUA price.
Last, but not least, the auction volume increases to almost 18 million allowances this week adding pressure on the price. (In addition, the 2017 auction calendars published last Friday show that the supply will increase significantly in a yearly comparison.)
All in all, we are rather bearish for this week, but due to the heavy losses of the last week the price might simply consolidate around 5 euro.


Source: Thomson Reuters, ICE

Monday, November 21, 2016

EUA Dec16: Low coal prices couldn't save the carbon price from losses last week

The chart of the EUA Dec16 showed a nice pattern of days with decreasing and decreasing prices this week. By the end of the week, however, the benchmark carbon contract lost 1.6%.
The price opened stable last Monday, but it turned lower when the components of the energy mix turned red. The price fell below the support level at 5.48 euro, and even tested the next support at 5.38 euro. The price closed with a loss of 4.6% or 26 cents.
The correction in the energy mix did not leave the carbon market untouched on Tuesday. The price opened with a three cents gap to Monday’s settlement price and despite falling to 5.42 euro, it didn’t close it and left 1 cent, which will work as a support. After climbing higher the whole day long, the price finished the day at 5.74 euro, a gain of 33 cents or 6%. 
The price moved in a wide range of 39 cents on Wednesday. The support at 5.48 euro worked well, but the price closed with a loss of more than 3%.
The afternoon rally in the energy mix and the strong auction pulled the EUA Dec16 higher on Thursday. The news about the Chinese government abolishing earlier limits on coal mining pushed coal prices lower which had a positive effect on the carbon market. After reaching and breaking the resistance level at 5.80 euro, some stop-loss orders might have been triggered and the price rallied to an intra-day high at 5.93 euro. By the end of the day the price managed to keep its gains and closed 35 cents above Wednesday’s settlement price.
After the rally on Thursday, the benchmark carbon contract turned lower on Friday again. Beside the falling German power prices, the weak auction result was an additional factor pushing the price lower to a closing price of 5.58 euro. 
Despite the volatility observed last week, the price seems to consolidate in October’s comfort zone between 5.40 and 6.10 euro. We keep this range as our base range for this week as well, emphasising that the upcoming events might increase the volatility of the price again: 
The UK is expected to provide some insight in the future of the country’s carbon tax on Wednesday. The OPEC should agree on the exact figures of the production cut 30 November. And the ENVI will vote about the amendments to the post-2020 reform proposal of the European Commission 8 December.



Source: Bloomberg L.P.

Monday, November 14, 2016

EUA Dec16: Leaving the increasing trend channel

The EUA Dec16 lost almost 12% last week due to falling German power prices, the worsening of the German dark spread and weak auction results.
Although it opened cautiously 2 cents below the previous Friday’s settlement price, the benchmark carbon contract was lifted by higher power prices last Monday. The EUA Dec16 reached 6.60 euro, just 2 cents below the November high. The worsening dark spread, however, weighed on the price in the afternoon and some traders might have closed long positions before the US elections taking profit from the recent rally. As a consequence, the price fell by 18 cents or 2.8%.
The benchmark carbon contract opened at Monday’s settlement price on Tuesday, and fell then continuously to an intra-day low at 5.97 euro. The price got under pressure from the correction in power prices and the low dark spread. It managed to recover in the afternoon, when selling pressure reached the coal as well pushing it down by more than 2%. By the end of the day the EUA Dec16 reduced its losses to 1.3%.
The price opened with a gap of 21 cents down after the day of the US presidential elections. (After the Brexit referendum it left a gap of 41 cents.) After falling to an intra-day low at 5.82 euro (a level not seen for 7 days) the recovery happened on the same day and the morning gap was closed. The price finished above 6 euro and with a marginal loss of 2 cents.
Despite the strong opening on Thursday, the price declined during most of the trading. It fell below 6 euro and consolidated there until the market closed. By the end of the day it lost 21 cents or 3.4% (more than immediately after the election day). The decline pushed the price from the increasing trend channel and also below the 20DMA, a long time support. In addition, the last two candles formed a bearish engulfing increasing the number of negative signals.
And the technical signals proved to be right on Friday, as declining power prices and the further worsening of the German dark spread pushed the price even lower. The price closed the day with a loss of 25 cents and the week with a decline of 12%.
As we don't expect any major political announcements this week, the carbon market might take direction from the components of the energy mix and from the auction results this week.
The number of allowances offered will almost reach 18 million this week, 3.5 million more than last week. In addition, appetite for the allowances seems more dented recently. The average cover ratio of the auctions last week was 2.17, compared to the November average of 2.57. 
Another, rather bearish factor is the decline in power prices (market seems to have digested and prices in the French nuclear outages) and the worsening of the German dark spread. 
With the end of the year approaching, the next rate decision meeting of the Federal Reserve is also coming closer, Despite some uncertainty immediately after the US Presidential elections, the probability of a rate hike increased again by the end of last week. The USD proved surprisingly strong and weighed on the dark spread.
Last, but not least, market also expects the OPEC to agree on the exact numbers of the production cut. Should the Organisation not be able to reach an agreement, it would affect negatively oil, gas and carbon prices.
Should the decline of the EUA Dec16 continue, the price might retest the support level at 5.23 euro (with a local low at 5.48 euro from 21 October being a support before).
In a positive scenario (rather unlikely given the bearish technical and fundamental signs), the price has to break the 20 and 30DMAs first (at 5.97 and 5.83 euro, respectively), before it could retest the psychologically important 6.00 euro level.



Source: Bloomberg L.P.

Monday, November 7, 2016

EUA Dec16: Power rally lifted the price to a 6-month high

The continuing rally in power prices lifted the benchmark carbon contract to a new 6-month high last week. 
Although the EUA Dec16 opened with a 2 cents gap downwards last Monday and fell to an intra-day low at 5.76 euro (a Marubozu line), it recovered by the end of the day and closed with a gain of 2 cents or 0.3% in a daily comparison. Considering that there were less market participants present in the market (All Saints' Day bridging), the traded volume was higher than expected. Behind the apparent high volume (13 million in Dec16) there was mainly one significant block trade on Dec16 / Dec17 (rolling positions).
After opening 1 cent above Monday’s closing level, the benchmark carbon contract increased continuously in Tuesday’s trading. Higher power prices and the lack of a daily auction supported the price in a way that it gained 2.2% and closed at 6.03 euro. This was the first time since June that the price managed to settle above the 6 euro level.
Impressed by the higher than 6 euro settlement price on Tuesday, the EUA Dec16 opened 3 cents higher on Wednesday. As the general market mood turned negative during the previous night with some polls showing Mr. Trump taking over the leadership in US Presidential elections, the carbon price ceded the pressure and fell to an intra-day low at 5.86 euro. Record breaking power prices (due to cold winter and reduced renewable generation forecast, limited French nuclear availability) reversed the losses in carbon and the price rallied to a five month high at 6.27 euro. The price jumped from the 5.50-6.00 euro basis it was moving in since the beginning of October.
Higher power prices on limited French capacities available, a strong auction and the expectations on a soft Brexit made the carbon price rally on Thursday. After some initial hesitation the price hit a new 6-month high at 6.62 euro breaking several resistance levels. 
It became overbought during the day and it seems that the Marubozu line at 6.58 euro stopped the rally for the time being. The technical indicators suggested that the price is overbought. The RSI was above 70 and the price traded above the upper Bollinger band. 
On Friday the price moved between the 6.58 euro Marubozu line and the former resistance at 6.38 euro (which became a support after being broken). Lower German power prices and higher coal prices worsened the dark spread that weighed on the carbon price. In addition, many market participants might have taken profit from the recent rally in carbon prices. (The EUA Dec16 gained 9% in a week.)
The most important event this week that will influence prices all around the world will be the US presidential elections on Tuesday, 8 November. Until the final result is known, volumes might be low and the price might be range bound. 
The other factor defining the direction of the carbon price might be still the power market. The German front year power turned lower on Friday and worsened the dark spread. Should this movement continue, it would have a negative effect on the carbon price as well. Any additional outages in the French power sector, however, might reverse the declines. 
Our base range for this week is therefore 6.00 and 7.00 euro.


 Source: Bloomberg L.P.

Monday, October 31, 2016

EUA Dec16: 20DMA to be the first strong support

After the rally the Friday before the EUA Dec16 took a break and declined by 1.4% last Monday. The price opened 1 cent below the settlement price of the previous Friday and even tried to climb higher hitting an intra-day high at 5.98 euro, but it was not able to keep its gains and break above the 6 euro level.
The benchmark carbon contract opened higher early Tuesday and reached an intra-day high at 5.96 euro before retreating steadily. The auction cleared weaker than normal and the result triggered abrupt selling. The EUA Dec16 contract plummeted to 5.62 euro before recovering in the afternoon session. The Dec16 contract ended at 5.81 euro, flat from Monday’s close.
Supported by higher power prices and an appealing dark spread, the EUA Dec16 had a strong start to the day on Wednesday. It opened at 5.84 euro, a 3 cents gap from Tuesday’s settlement. The price increased continuously during the day to hit an intra-day high at 6.04 euro. This was the first time in five days, when the price managed to climb above the 6 euro level. It was, however, not able to remain above the psychological limit and closed at 5.94 euro, still a gain of 2.2%.
The price moved in a range of 22 cents on Thursday. After hitting an intra-day high at 5.97 euro in the morning hours, the price declined continuously during the day to reach a daily low at 5.75 euro. By the end of the day it managed to recover slightly, but still finished with a loss of 2.2%.
The intra-day range was even narrower during most of Friday (5.71-5.86 euro), but some late buyers arriving in the last 10 minutes of trading lifted the price to an intra-day high of 5.91 euro. The price finished just 3 cents lower, resulting in a gain of 7 cents or 1.2%.
The sideways movement of the last days led the EUA Dec16 to the lower edge of the increasing trend channel. It consolidated below 6 euro, a resistance level tested almost every day of the past week. From the downside, however, the 20DMA proved a strong support.
Without major carbon market events scheduled for this week the consolidation might continue, although power prices and central bank meetings can overwrite the picture. The first support is the 20DMA at 5.69 euro, followed by a local low near 5.50 euro. To the upside, the first important resistance is the 6.00 euro level, followed by the October high at 6.14 euro.



Source: Thomson Reuters

Monday, October 24, 2016

EUA Dec16: Overbought power might put a cap on carbon's potential gains

The EUA Dec16 closed its sixth week in a row with gains last Friday (+1.38% w/w). 
After opening 1 cent above previous Friday’s settlement price, the EUA Dec16 increased continuously on Monday as it received support from higher power prices, the improving dark spread and a nice auction cover ratio. The benchmark carbon contract reached an intra-day high at 6.04 euro (just 5 cents below the October high), but it was not able to maintain its gains and slipped back to close at 5.87 euro, just 6 cents above the previous settlement price.
The EUA Dec16 opened with a 4 cents gap up on Tuesday. Supported by the news that five French nuclear power plants will be taken off-line in the next three months, the price hit a new 4-month high at 6.14 euro. By the end of the day, however, the price returned below 6 euro.
The benchmark carbon contract opened in a positive mood with a 3 cents gap up on Wednesday, and it increased to an intra-day high at 6.06 euro, but it lost steam very quickly and fell hand in hand with European power prices. It closed the day at 5.67 euro, just one cent above the intra-day low at 5.66 euro. The five white candles of the previous days were followed by a black one on Wednesday. Unfortunately, this last candle had a bigger body than the former one forming a bearish engulfing on the chart.
Although the benchmark carbon contract attempted to climb higher on Thursday, it lost 1.6% by the end of the day. After hitting an intra-day high at 5.78 euro, it slipped lower continuously and fell to an intra-day low at 5.50 euro. By the end of the day it recovered somewhat, but closed only 8 cents above the daily low. The decline of the last two days pushed the price close to the lower edge of the increasing trend channel
The strength of the US dollar and the news about France giving up its plan of the carbon price floor were expected to weigh on the price on Friday, but the negative effect did not last long. The price opened with an 8 cents gap down, but reversed its direction quickly to jump to an intra-day high at 5.95 euro. The price was able to keep its gains until the last minute of trade and finished 5.6% higher.
Friday’s candle formed a bullish engulfing and lifted the price back above the lower edge of the increasing trend channel. (See the chart below.)
Should the positive effect of the increasing power prices persist, the EUA Dec16 could climb above 6 euro again this week. 
On the negative side, both power and carbon markets are already in or close to overbought territory, which increases the probability of a correction. The German front year power touched the 200DMA last Friday for the first time since 2011 and its RSI is at 74 (overbought). 
We therefore remain cautious for this week. Our base range is therefore between 5.40 and 6.14 euro.


 Source: Bloomberg L.P.

Monday, October 10, 2016

EUA Dec16: Consolidation after filling the Brexit gap

Supported by rising power and gas prices, the EUA Dec16 gained almost 15% and even touched 6 euro last week.
The EUA Dec16 opened with a 6 cents gap up at 5.02 euro and climbed continuously last Monday to hit an intra-day high at 5.39 euro. The price didn’t trade this high since the Brexit referendum. The 200DMA, however, stopped the appreciation (for the second time in 3 days).
Despite opening with a 5 cents gap up Tuesday morning,  the price was not able to maintain its gains. From its 5.36 euro opening price it slipped continuously during the day. The lowest level hit was 5.11 euro, but it recovered by the end of the day. It closed at 5.21 euro, a loss of 10 cents or 1.9%. For the third time, the 200DMA at 5.37 euro stopped the appreciation.
The positive signal received from the 20DMA crossing the 30DMA got confirmed on Wednesday. The price opened with a spectacular 12 cents gap up. After some hesitation in the morning hours, the price jumped above the 200DMA at 5.36 euro (for the first time since January) and rose to an intra-day high at 5.52 euro. This way the price reached the intra-day low on the day before the Brexit referendum (5.50 euro) which made some market participants think that the gap left after the referendum has been filled. The real upper edge of the gap was however the 5.65 euro level (the closing price on the day of the referendum) which left some space for further gains. The price received support from a stronger than usual UK auction, the continuing rally in the commodity prices and a surprising decline in the US crude oil inventories.
Despite opening with a 4 cents gap down at 5.44 euro, the EUA Dec16 appreciated step by step on Thursday. It broke several resistance levels, filled the gap left after the Brexit referendum and climbed even above 6 euro. The highest level hit during the day was 6.09 euro. It closed, however, below 6 euro, at 5.86 euro as profit taking started late in the afternoon.
The decline continued on Friday, but the 5.50 euro level proved a good support during the day.
Despite the correction in the last 1.5 days the increasing trend is still valid. 
Should power and / or oil prices support the carbon this week, the next resistance after last week’s high at 6.09 euro is a local high from June at 6.38 euro.
High cover ratios in last week's auctions and an increasing volume traded in the Dec17 and Dec18 contracts suggest that utilities increased their activity. This might be supportive for the carbon price.
Political activity might increase the volatility in the carbon market, but not in the usual way. 
Although the European Parliament's industry committee votes about the post-2020 reform of the ETS, we do not expect major surprises from the event as the compromise amendments of the four biggest political groups are known.
But oil exporting countries will meet again, this time in Istanbul. Should the countries surprise markets with an agreement about the details of the oil production cut (they agreed on last month in Algiers), the market might react in a positive way. (Especially, after Russia saying last week that it only goes to Istanbul for negotiations, but not for a deal.)
If the correction continues (as the RSI is still very close to overbought territory), the first strong support is the 200DMA at 5.32 euro followed by the psychologically important 5.00 euro level.
All in all, we expect the price to consolidate between the 200DMA and last week's high in the next couple of days.


 Source: Bloomberg L.P.

Monday, October 3, 2016

EUA Dec16: Consolidation near 5 euro expected

Supported by European power prices, the benchmark carbon contract gained 9.25% last week.
The EUA Dec16 opened 1 cent above Friday’s settlement price last Monday and after falling to an intra-day low at 4.48 euro, it climbed higher and finished the day at 4.62 euro, up 8 cents or 1.8%. For the second time, it was the Fibonacci level at 4.72 euro that stopped the appreciation. The price received support from higher power prices in Europe. It was also the first day of the International Energy Forum in Algiers and the host country spoke up the oil price by saying that any agreement would be possible.
After four white candles the benchmark carbon contract, however, got under pressure on Tuesday. It opened at 4.61 euro, 1 cent below Monday’s settlement price and although it spent some minutes in the positive territory, it closed the day 19 cents or 4.1% lower, as hopes for an oil production freeze faded.
Opening with a 3 cents gap up at 4.46 euro, the EUA Dec16 appreciated continuously in Wednesday’s trading thanks to the rally in French and German power prices. It hit a new local high at 5.02 euro, a level not seen since 18 July. The traded volume was the second highest after the day of the Brexit referendum which confirmed the positive momentum.
With an unexpected last minute agreement amongst OPEC members to limit production to between 32.5-33 million barrels per day, carbon prices received a boost Thursday morning. The price opened with a 4 cents gap at 4.99 euro and jumped to 5.37 euro. The price filled half of the gap left after the Brexit referendum (between 5.24 and 5.65 euro). A correction in the oil and power prices in the afternoon, however, did not leave the EUA Dec16 untouched. The price closed at 5.02 euro, a gain of 7 cents (+1.4%) from Wednesday’s settlement price.
The price calmed down and oscillated around 5 euro on Friday. The correction in oil and power prices exercised a negative impact on the price, but when the price fell below the psychologically important round figure, buyers appeared. The closing price at 4.96 euro is 9.25% above the settlement price of the Friday before. 
The fact, however, that the price was not able to stay above the 5 euro level, might make some market participants hesitating about opening new long positions. (The same is true for the front year German power which was not able to stay above the 30 EUR/MWh level.) 
In the case of a correction, there are some weak support levels at 4.80 and at 4.62 euro (both Fibonacci retracements). The strong support is seen near 4.50 euro. There is another Fibonacci level at 4.44 euro, the 30DMA is at 4.41 euro and the 20DMA at 4.32 euro. 
Another possible scenario is that the price only returned to the upper Bollinger band (4.99 euro) after closing outside the band for two days and that the price continues its path upwards in the coming days. Besides the energy mix the missing Monday auction (Germany celebrates its reunification) might be supportive for the price. In this case the price has to break the key 5 euro level first before it could retest last week's local highs at 5.12 and 5.37 euro.
All in all, we expect the benchmark carbon contract to consolidate near the 5 euro level this week. Our base range is between the 30DMA (at 4.41 euro) and the 200DMA (at 5.40 euro).


Source: Bloomberg L.P.

Monday, September 26, 2016

EUA Dec16: Auction cover ratios and political debates in focus this week

The EUA Dec16 had a volatile day on Monday. After opening 4 cents above last Friday’s settlement price, it fell by 3.7% to an intra-day low at 4.20 euro, but it recovered in the afternoon and closed the day with a gain of almost 1%. On Monday it was again the 30DMA which halted the rally, just like the Friday before. Monday’s candle was a doji, showing uncertainty in the market about which direction to take.
The EUA Dec16 opened one cent below the previous settlement price on Tuesday. For a short time it was able to touch the 4.40 euro level, but fell then continuously. It broke below the 20DMA, the earlier support at 4.28 euro and Monday’s intra-day low at 4.20 euro could not halt the depreciation either. By the end of the day it closed at 4.16 euro, 24 cents or 5.0% below Monday’s settlement. The price cancelled almost all the gains of the previous two days. The 10-minutes chart of the benchmark carbon contract shows a double top. If the pattern is right, the price might test the support level at 4.00 euro.
The benchmark carbon contract moved in a narrow range on Wednesday, as investors stayed at the side lines of the market before the rate decision of the US Federal Reserve. Despite opening 4 cents above Tuesday’s  settlement price, the 20DMA limited gains. By the end of the day, the price gained 6 cents.
The decision of the Federal Reserve gave wings to all markets and switched investors in risk-on mode. The EUA Dec16 opened with a gap up on Thursday and appreciated continuously during the day to hit a local high at 4.46 euro. The price kept its gains until the market closed at finished the day at 4.42 euro.
The rally continued on Friday, when the price reached a new September high at 4.69 euro, a level not seen since 30 August. AS the German front year power hit a one month high, the dark spread jumped above 2 EUR/MWh for the first time since the beginning of July. The benchmark carbon contract gained more than 4% in a weekly comparison.
Despite the jump of the last two days the relative strength index (at 56) leaves room for further appreciation. 
There will be only four EUA auctions this week offering a total of less than 15 million allowances, as on Wednesday 0.7 million EUAAs will be auctioned on behalf of the EU. The last two auctions had a cover ratio above 2, which might be a positive signal that utilities are back in the market and hedging their production.
The environment committee of the European Parliament will debate the amendments submitted to the report of the rapporteur Ian Duncan about the post-2020 reform of the EU ETS on Thursday. Should the discussion show support for higher ambition, it might support the price of the benchmark carbon contract. 
One of the most expected events of the carbon market is the General Assembly of the International Civil Aviation Organization (ICAO) starting on Tuesday. The ICAO might reach a historical agreement about how to limit aviation emissions from 2021. This would be the first worldwide sectoral regulation of emissions. Although it seems likely that the scheme would be voluntary in the beginning, market participants focus on the list of eligible units. Should EUAs and CERs be part of the list, their prices might show a positive reaction.
AS the price of carbon tends to show a certain correlation with the price of oil, the International Energy Forum in Algiers in the firts half of this week might have a special importance for the carbon market. Should the oil exporting countries be able to surprise markets with an agreement about coordinated action to support the price of oil, this could be supportive for the EUA price as well.
In a positive scenario, the EUA Dec16 might retest last week`s high at 4.69 euro and the following Fibonacci level at 4.72 euro. If these levels get broken the next resistance is the local high at 4.97 euro.
In the case of a correction, the first support level is near 4.40 euro (30DMA and a Fibonacci level), before the 20DMA at 4.23 euro.
After the recent rally we remain cautiously optimistic regarding the price development of the EUA Dec16, keeping in mind that disappointing political decisions (in ENVI, ICAO or OPEC) represent a bearish risk for the price.



Source: Bloomberg L.P.

Monday, September 19, 2016

EUA Dec16: Short covering lifted MACD above signal curve

Thanks to the rally in the last two days of last week, the EUA Dec16 gained 7% on a weekly basis. 
All markets opened in a negative mood last Monday after Fed members increased the likelihood of a September rate hike. The carbon market was no exception. The first trades still lifted the price to 4.12 euro, but soon the price turned lower and fell below 4 euro. The price received an additional negative impact from the weak auction that cleared at a significant discount to the secondary market price. From the intra-day low at 3.94 euro the price recovered in the afternoon when US markets opened. By the end of the day the price climbed back above 4 euro and closed at 4.03 euro, still 5 cents below the settlement price of the Friday before.
The benchmark carbon contract had a quiet day on Tuesday. It opened 3 cents above Monday’s settlement price, but only increased to 4.07 euro. After the weak auction cover ratio it even visited levels below the 4 euro level, but it recovered by the end of the day to close unchanged in a daily comparison at 4.03 euro.
After some initial hesitation, the EUA Dec16 opened at Tuesday’s settlement level on Wednesday. After jumping to an intra-day high at 4.08 euro the price fell continuously until reaching 3.96 euro. The price was not able to recover by the end of the day and closed at 3.98 euro, below the critical 4 euro level for the first time since 5 September.
Finally, the benchmark carbon market had a positive day on Thursday. It opened at 4 euro, two cents above Wednesday’s settlement price, fell briefly to an intra-day low at 3.95 euro, but turned back higher in the second half of the day. The last minutes of trading saw a spectacular rally and the price jumped to 4.16 euro. The price managed to keep its gains until the market closed and it settled at 4.14 euro (+4.0%). The price broke the resistance of 4.07 euro and this might have triggered some short covering as volume also jumped at the breakthrough.
The rally continued on Friday when the EUA Dec16 gained 22 cents or 5.3%. The appreciation started after the strong German auction and accelerated when the price broke the 4.28 euro resistance level which triggered many short sellers to close their positions. The price also broke the 20DMA at 4.33 euro, but was halted by the 30DMA at 4.48 euro. 
The rally lifted the MACD above the signal curve which is a bullish signal, although both (the MACD and the signal curve) are still in the negative territory. The price also broke out from the narrow range it was moving in in the first half of September.
Although it seems that most of last week's rally happened thanks to the closing of short positions, it might also happen that the market started to cautiously price in the leaked post-2020 reform proposals that show increased ambition to cut GHG emissions (linear reduction factor of 2.4% instead of the 2.2% as proposed by the European Commission, rebasing the cap from 2021). 
The relative strength index (RSI) reached 50 on Friday leaving some room for further appreciation. Should the rally continue, the first resistance is the 30DMA at 4.46 euro, followed by 4.78 euro, the level from which the price turned down 30 August.
Despite the nice rally last week, we have to emphasise the risks that might limit further gains.
1. Most importantly, there will be five auctions this week increasing the supply of allowances by 24% in a weekly comparison. 
2. Volatility in Brent and other related commodities might increase with the International Energy Forum in Algiers (26-28 September 2016) approaching and different participants commenting about a possible agreement of oil producing countries about coordinated action.
3. Main focus will be on the Fed rate decision and the following press conference of Wednesday. No change in the current rates is expected by the market, but should the Fed surprise investors with a rate hike, it might affect negatively commodity and stock prices.
In the case of a correction, earlier resistances will work as supports (the earlier 2016 low at 4.28 euro, the psychologically important 4 euro and the new 2016 low at 3.87 euro).



Source: Bloomberg L.P.


Monday, September 12, 2016

EUA Dec16: Consolidation around 4 euro

Although it hit a new 3-year low on Monday, the EUA Dec16 consolidated around 4 euro last week and closed unchanged in a weekly comparison.
Despite opening 5 cents above the settlement price of the Friday before, the EUA Dec16 slipped lower to an intra-day low at 3.87 euro after the auction on Monday, a new 3-year low. The price could not recover by the end of the day, and closed below 4 euro (for the first time since May 2013). The price lost 3.7% on a daily basis. The RSI slipped below 30 suggesting that some correction might be in the cards.
After 7 black candles and an RSI at 28 we saw a white candle on Tuesday. The price opened 4 cents above Monday’s settlement price, but fell to an intra-day low at 3.90 euro in the morning as the price of Brent went through a correction. The strong auction result, however, pulled the price above 4 euro again and it closed at 4.13 euro, up by 20 cents or 5%. The decline of the two previous days, however, pushed the 20DMA below the 30DMA, which is a bearish signal.
Despite a strong opening (4 cents above Tuesday’s settlement price), the EUA Dec16 slipped continuously on Wednesday, and closed at 4.01 euro, down 12 cents or 2.9%.
The EUA Dec16 moved in a narrow range of 12 cents on Thursday. The price received support from the falling coal price, the stronger euro and the improving dark spread. The price got a special boost in the afternoon from the rallying oil price. (US crude inventories surprisingly declined versus the expected increase.) It therefore closed at its daily high, at 4.08 euro, up by 1.7%.
The benchmark carbon contract had a quiet Friday. It moved in a 13 cents range, climbed to an intra-day high at 4.15 euro before falling back to Thursday’s closing level. Friday's candle is a doji that often signals the hesitation of the price about which direction to take.
The daily minimums since last Monday when the price hit 3.87 euro (a three year low) increased every day, but the price could not break above 4.17 euro (although trying three times). 
The technical indicators are in neutral territory (with the exception of the 20/30DMA cross) and price seems consolidating around 4 euro. We have a neutral view on the carbon price for next week with a base range of 3.80-4.30 euro, emphasising that the auction results and the energy mix can increase the volatility of the price.



Source: Bloomberg L.P.