Monday, April 25, 2016

The EUA Dec16 got overbought before the compliance deadline

The EUA Dec16 digested quickly the steep fall in the price of Brent. The price opened at 5.45 euro on Monday, 3 cents below Friday’s settlement price. It fell to an intra-day low at 5.36 euro, but recovered step by step during the day to hit an intra-day high at 5.49 euro. The benchmark contract closed the day at 5.47 euro, leaving another doji candle, the third in three weeks. Higher power prices and a recovery in the dark spread might help the EUA dec16 price today. The first strong resistance is the April high at 5.67 euro. To the downside, the first support is the former resistance at 5.35 euro.

The EUA Dec16 continued its upward path on Tuesday. It reached 5.57 euro before some profit taking pushed the price to 5.46 euro. By the end of the day the price recovered and climbed above 5.50 again. The price hit an intra-day high at 5.58 euro and closed just 1 cent below that level. By the end of the day the price jumped almost 2%.

The EUA Dec16 sit on a roller-coaster on Wednesday. After opening 4 cents below Tuesday’s settlement price, it climbed slightly higher, but then it fell to an intra-day low at 5.45 euro. Buyers lifted the price in the afternoon to 5.56 euro and the contract finished the day just one cent below this level.

With a spectacular rally, the EUA Dec16 broke the resistance level at 5.67 euro on Thursday and closed above this critical level, opening the space for further appreciation on Friday. The last day of the week bought a new local high and the price broke the next resistance level at 5.85 euro and jumped to 6.03 euro.

Given the fact that this is the last week before the deadline for 2015 compliance expires, the price could rise further.

There is no strong resistance below 6.28 euro, an intra-day high from 29 January, unless the round number of 6.00 euro (and the upper Bollinger band) stops the price.

The RSI above 70, however, might warn of the possibility that some market participants could take the profit from their long position in the coming days. The German power entered overbought territory as well and a correction could have a negative effect on the price of carbon. In addition, the Polish EUA auction on Wednesday lifts the weekly supply above 17 million again.

In the case of a correction, the earlier resistance levels could work as supports, at 5.67, 5.50 and 5.35 euro.

Source: Bloomberg L.P.

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