Monday, February 15, 2016

EUA Dec16 still in the declining trend channel despite Friday rally

The EUA Dec16 continued its free fall last week as well hitting a new 2016 low every day except Friday. Although the candles were smaller day by day, they were all black until the last day of the week.

Although the hammer candle from Tuesday suggested that the price might have found a bottom, the decline didn’t stop on Wednesday and the price reached a new 2016 low at 4.62 euro on Thursday, a level not seen since March 2014.

The only bright spot on the chart is Friday’s white candle, something we didn’t see since 2 February. 

The first positive point is that the price didn’t fall to a new local low on the last day of the week. 
Helped by a recovery in the price of Brent and front year German power, the benchmark carbon contract climbed close to 5 euro in the morning. The strong auction result pulled the price to 5.07 euro for a moment, but then it slipped back below 5.00 euro again. The afternoon brought buyers back to the market and the price rallied to 5.17 euro.

Despite the strong Friday performance, the price remained in the declining trend channel that started in January. Also the last 10-minutes candle of Friday’s chart might be a warning signal, as the price was not able to stay at 5.17 euro, but fell to 5.07 euro by the time the market closed.

In order to break out from this declining trend channel, the price would have to break above 5.20 euro and stay there. The first critical level is though at 5.00 euro. After 5.20 euro there is a Fibonacci retracement level at 5.50 euro that might halt the price from advancing further in the next couple of days. 

To the downside the first support is the 2016 low at 4.62 euro. Below this level there is a Fibonacci level at 4.39 euro, but the really strong support might be at 4.27 euro, the low from March 2014.

Source: Bloomberg L.P.

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