Monday, January 25, 2016

ECB helped markets in climbing higher, including carbon

The EUA Dec16 started the week on a roller coaster . After opening 10 cents above Friday’s settlement price, it fell to a new 10-month low at 6.56 euro in the first hour of trading. Recovering oil and power prices pulled the price of allowances to 6.69 euro before noon, but the disappointing result of the first auction of the week pushed it down to the daily low again. Following waves in German power the EUA Dec16 reached 6.79 euro in the afternoon, before it closed at 6.76 euro, 0.6% above Friday’s settlement price.

Tuesday was less volatile with an intraday range of 21 cents only, between 6.74 and 6.95 euro. The price finished the trading 10 cents above Monday's settlement price.

After the first two short white candles came two huge black ones. The price hit new 15-month low on Wednesday and on Thursday as well. First it fell in sympathy with other commodities like oil, gas and power. On Thursday it was depressed by the more than 1% weakening of the euro versus the US dollar after the President of the European Central Bank assured markets that the Bank would do anything it can to counterbalance the downside risks affecting the European economy. The hint on more stimulus (money supply) from the Central Bank weakened the euro that has a negative effect on the carbon price through the dark spread.

The new 2016 low hit on Thursday was at 5.87 euro. By Friday market either thought it’s time for a rebound and profit taking from short positions or realized that the ECB President actually promised economic stimulus that would help in avoiding the financial crisis we saw in 2008. The price jumped to an intraday high at 6.55 euro and closed the day with a 2.4% appreciation.

In a weekly comparison, however, the EUA Dec16 lost more than 5% again.

After falling by more than 20% in 2016, the EUA Dec16 entered officially a bear market. The price could continue on this path, should the abundant auction supply and the delay of political negotiations about the reform of the system weigh on the price. The first support is last week’s low at 5.87 euro followed by the October 2014 low at 5.75 euro and by 5.00 euro.

On the other hand, the overall message of Mr. Draghi was positive and if it gets echoed by the US Federal reserve this Wednesday, it might turn the markets higher. Carbon included. In a positive scenario, the price might test the Fibonacci level at 6.45 euro, the Marubozu line at 6.55 euro and the other Fibonacci level at 6.81 euro before climbing above 7 euro again.

Source: Bloomberg L.P.

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