Tuesday, March 29, 2016

EUA Dec16: Consolidation before the publication of the 2015 verified emissions

As envisioned the week before, the upper edge of the triangle limited gains in the EUA Dec16 and the price fell by more than 3% last week.

The benchmark carbon contract opened in a negative mood on Monday. The price opened at the settlement price of the previous Friday exactly, but slipped continuously after the opening. It hit an intraday low at 4.86 euro, but recovered slightly in the afternoon when the German dark spread improved in parallel with higher power prices. The recovery, however, was still not enough to lift the price to 5 euro.

The news about the terror attacks in Brussels Tuesday morning pushed all markets lower. The EUA Dec16 fell to an intraday low at 4.75 euro, below the support level at 4.77 euro. The contract managed to climb back later and closed at 4.83 euro (1% below Monday’s settlement price) helped by an improving dark spread due to lower coal prices.

The EUA Dec16 opened at 4.81 euro on Wednesday, 2 cents below Tuesday’s settlement price. It managed to climb to 4.83 euro in the early hours of trading, but slipped quickly to an intraday (March) low at 4.70 euro. The last hours of trading, however, brought buyers to the market and they pulled the price back. The benchmark carbon contract closed at 4.81 euro, leaving a dragonfly doji candle which generally indicates hesitation of the market about which direction to take. The fact that the price recovered from its intraday lows was a promising signal.

The benchmark carbon contract, however, traded in the red during almost the whole day on Thursday, but posted a surprising afternoon rally and closed at its intraday high at 4.86 euro.

The week after the Easter holiday will see more or less the same auction supply with Poland stepping in instead of the UK on Wednesday. 

Additional supply might land in the market if the updated status table on 2016 free allocation shows that Spain, Italy and/or Finland distributed free allowances.

Price volatility might increase on Friday, when the European Commission publishes 2015 verified emissions data. The market consensus expects –1% - +1% change from 2014 emissions. Anything out of this range might trigger additional trades in the carbon market. Until the publication of the verified emissions data the price might consolidate below 5 euro.

The first support level is last week's low at 4.70 euro followed by the 2016 low at 4.62 euro.

To the upside the first resistance levels are the 20 and 30DMAs at 4.94 and 4.97 euro, respectively and the declining trend line that capped gains last week.

Source: Bloomberg L.P.

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