Monday, April 4, 2016

EUA Dec16 broke above declining trend line

We have a short, but very intensive week behind us. Traders turning back from Easter holidays were still uncertain on the first two days, but they started closing short positions and probably opening longs from Wednesday on.

The EUA Dec16 started the week with a 6 cents gap down from the settlement price of 24 March. It slipped down to 4.75 euro in the morning. It ticked higher in the afternoon and jumped to 4.84 euro, but was not able to maintain its gains and turned lower in the afternoon and closed at 4.79 euro, 1.4% below last Thursday’s settlement price. By the end of the day the price formed a doji candle indicating hesitation of the market.

Despite the positive mood around the world, the EUA Dec16 opened 2 cents below Tuesday’s settlement price, at 4.77 euro on Wednesday. It quickly slipped to 4.75 euro, but reversed direction in the first hour of trading already. By jumped higher and higher, it reached 5.00 euro and broke above the 20DMA, but has been stopped by the 30DMA and closed at 4.97 euro.

After touching 5 euro on Wednesday before the market closed, the EUA Dec16 continued its rally on Thursday and jumped to 5.24 euro. The price hasn’t been at this level since 8 March. The price broke many resistance levels: the 20 and 30DMAs and the local high at 5.04 euro (hit 17 and 18 March). At these resistance levels, there might have been stop-loss orders (of short positions). Once the price level of these orders has been reached, the transactions have been executed.

The rally continued on Friday when the benchmark carbon contract reached 5.35 euro. The lower than expected 2015 emissions pushed the price to an intraday low at 4.91 euro, but the EUA Dec16 recovered and managed to close at 5.22 euro.

The fact that the price broke above the declining trend line, and closed above the 20 and 30DMAs and above 5 euro are positive signals for the coming week. The last two weekly candles form a bullish engulfing, also suggesting further gains. 

The price might consolidate above 5 euro, but the potential gains might be capped by the abundant auction supply (more than 17 million EUAs will be offered next week) and the Brent price that slipped below 40 USD per barrel again. 

The resistance levels are at 5.35 euro (intraday high from 1 April), followed by 5.49 euro, the high reached 22 February.

Former resistance levels could work as supports from now on (the 30DMA at 4.98 and the 20DMA at 4.97 euro).

Source: Bloomberg L.P.

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