Monday, February 22, 2016

EUA Dec16: Above the declining trend channel

Despite the relatively positive sentiment in global markets on Monday, the EUA Dec16 was not able to climb higher. It opened 1 cent below Friday’s settlement price, but fell steeply below 5.00 euro. After falling to 4.87 euro, the price seemed to stabilize, but the decline got faster in the closing hour and the price closed more than 5% below last Friday’s settlement price

Tuesday’s pattern was similar. After opening slightly higher, the EUA Dec16 continued its declining path. The depreciation got faster in the afternoon when the price fell to an intraday low at 4.64 euro, just 2 cents above the 2016 low of 4.62 euro. By the end of the day the price climbed slightly back and closed 2.3% below Monday’s settlement price.

Wednesday started with the retest of the 2016 low at 4.62 euro. Prices then climbed up and rose to above 5 euro in the afternoon. The bellwether contract rose to intraday high at 5.14 euro before it closed the session at 5.10 euro, up 0.40 euro (+8.3%) day on day.

The EUA Dec16 opened Thursday 4 cents above Wednesday’s settlement price and jumped to a daily high at 5.39 euro in the morning hours already. After hitting this level, however, the price consolidated between 5.20 and 5.30 euro. The benchmark contract remained above the declining trend channel which is a positive sign.

Friday was about profit taking, but still, last week was the first in 2016 the price managed to close with gains.

There are many positive technical signals. The Dec16 contract has convincingly broken the downward trend since January last week. In addition, the price touched the 2016 low at 4.62 euro twice, forming a double bottom that generally is a signal of a trend reversal. This implies further potential to the upside for the bellwether contract. 

The clean dark spread, however, narrowed significantly last week and might limit the upside. Also the outlook for further EUA supply in form of free allocation for the calendar year 2016 keeps the price under pressure. The supportive signals from Brent seemed to vanish on Friday as well.

In a positive scenario, the price has to break the 20DMA at 5.42 euro first, before testing the 30DMA at 5.88 euro. Should the abundant supply push the price lower, the first support is 5.00 euro, before the 2016 low at 4.62 euro could be retested.

Source: Bloomberg L.P.

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