Monday, May 2, 2016

EUA Dec16: Correction after touching 7 euro

Despite some initial hesitation due to the energy mix in red, the EUA Dec16 climbed higher to hit a new 3-month high at 6.09 euro on Monday. It was not able, however, to keep its gains by the end of the day and lost 7 cents (-1.1% d/d).

On Tuesday, the EUA Dec16 opened at 5.92 euro, 2 cents above Monday’s settlement price. After slipping to an intra-day low at 5.87 euro, it started to rally and didn’t stop until 6.71 euro, the highest level since 20 January. The price broke above the trend channel and the RSI increased above 70.

Buyers seemed unstoppable in the carbon market on Wednesday again. The EUA Dec16 opened 4 cents above Tuesday’s settlement price and three hours after the market opened the price was already 40 cents higher, above 7 euro. The rally above 6.67 euro (a former resistance) was especially spectacular as the ask side of the book was almost empty. The price slipped then below 7 euro in the afternoon, but gained more than 3% in a daily comparison.

The EUA Dec16 contract gave back big part of the gains of Tuesday and Wednesday during Thursday’s trading. The price opened at 6.83 euro, touched an intra-day high at 6.90 euro, but then it declined until the end of the day and closed at 6.34 euro, down 0.50 euro (-6.9%) from Wednesday’s settlement price.

The candles from Wednesday and Thursday formed a bearish engulfing which might have convinced some traders to sell the EUA, so the price fell to 6.13 euro on Friday. There might have been traders taking profit from the April rally and also closing long positions before the long weekend.

After the recent rally, the price might take a break and consolidate near the current levels next week. The lower auction supply might support the price as there will be only three auctions this week due to public holidays. The weekly auction volume will decline by some 40% to 10.4 million from 17 million the week before.

In a positive scenario, the first resistances are two Marubozu lines at 6.29 and at 6.58 euro, followed by the April high at 7.07 euro and the 200DMA at 7.21 euro.

Should a correction start in German power or the shadow rapporteurs chose the less ambitious options from Mr. Duncan’s skeleton paper on Friday, the price might fall below the 100DMA at 6.07 euro and in worst case to the 20DMA at 5.73 euro.

Source: Bloomberg L.P.

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