Markets received a hit Monday morning from China again and got on a sharply declining path. Manufacturing activity in the world’s second biggest economy decreased for the sixth consecutive month, signalling its weakness. The weak data pushed all commodity prices lower. The Brent oil lost 4% and the German power price slid 2.5%. The price of the EUA Dec16 fell below 6 euro again and closed the day with a loss of more than 6%.
Despite opening above Monday’s settlement price, the benchmark contract slipped quickly to a new 20-month low at 5.46 euro on Tuesday. At 5.50 euro, however, some investors might have started taking profit from short positions and the price closed 2.3% above Monday's settlement price.
The rest of the week didn’t bring too much excitement the upper limit being Tuesday’s high at 5.85 euro and the lower limit around 5.50 euro. Traders with long positions only had the fingers crossed on Friday when the price fell to 5.47 euro again, just one cent above the 2016 low.
Although the relative strength index (at 25) suggests that the price is oversold, the declining trend in the EUA Dec16 is valid and there is no sign of a turnaround yet. There seems to be an interesting pattern in the last couple of weeks: there is a big black candle on Mondays, but then no real excitement until the end of the week.
Until now all weeks of 2016 brought a new local low. The question is when this trend ends.
The signs from the energy mix, the abundant auction supply and the overall declining trend suggest that further declines might be in the cards this week. Last week’s low at 5.46 euro is the first support level, followed by the 5.00 euro level where the price relaxed between end of 2013 and beginning of 2014.
Should the recent small candles and last Friday’s doji indicate that the price is consolidating and looking for higher levels, the first resistance it has to break is at 5.85 euro. This level halted the price three times last week. Above 6.00 euro (at 6.04 euro) we can find a Marubozu line and then the 20-day moving average at 6.32 euro would be the next resistance.
Source: Bloomberg L.P.