Monday, February 1, 2016

EUA Dec16: Time for consolidation after 30% loss in January

Last Monday, the EUA Dec16 closed below 6 euro for the first time since October 2014. The contract fell to an intraday low of 5.72 euro before rebounding slightly to close at 5.91 euro, some 0.45 or 7% lower compared to the previous close. With surrounding markets (Asia, oil, power) under pressure, the price fell to 5.61 euro on Tuesday, a level not seen since June 2014. The trend was clearly downwards in the first half of the week.

The EUA Dec16 contract dipped below the 6 euro level again on Wednesday. The loss in the benchmark carbon contract came despite Brent crude oil triggering the entire energy complex higher. 

Although the price didn’t fall to new record low, there was still pressure on it.
The benchmark closed above the 6 euro level on Thursday. The carbon market received positive signals from broader markets (Asia, oil). In addition, Thursday’s white candle together with the small black candle from Wednesday formed a bullish engulfing pattern.

Friday was rather quiet with no major changes in the price of the benchmark EUA contract.

Although in the last three weeks we had to get used to the idea that technical signal can be wrong and an oversold price doesn’t necessarily mean that it turns higher any time soon, we might be more optimistic this week.

In the last three trading days the price didn’t hit any new local lows and last week’s chart contains a bullish engulfing.

In a positive scenario, the price might retest the Fibonacci level at 6.65 euro or even the local high after two white candles (that were quite exceptional in January) at 6.97 euro, before visiting 7.00 euro again.

The declining trend of January, however, is still unhurt which might make us cautious. Should the price turn back into this trend channel (due to the abundant auction supply or an unexpected shock in the oil market), the first support is the psychologically important 6.00 euro, followed by 5.85/5.79 euro, both being local lows from last week. The first strong support, however, is the 2016 low at 5.61 euro.

Source: Bloomberg L. P.

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