Monday, May 30, 2016

EUA Dec16: ENVI report and OPEC meeting might impact the price this week

Despite the delay of the report of the ENVI rapporteur Duncan about the post-2020 reforms of the EU ETS and many traders being at the Carbon Expo, the EUA Dec16 remained stable last week.

The EUA Dec16 opened at 5.95 euro, 2 cents below the settlement price of the Friday before. It was not able to climb any higher during the day. The depreciation accelerated in the last 30 minutes of trading. By the end of the day the benchmark carbon contract lost almost 4% and closed deep below the 30DMA (first time in 11 days). 

After a sleepy start the EUA Dec16 climbed to 5.79 euro on Tuesday, but fell quickly to 5.70 euro. The price showed a strong correlation with German front year power in the morning, but reversed direction and followed the rally in Brent after the publication of US housing data. 

The benchmark carbon contract had a positive start to the day on Wednesday, but the cancelled Polish auction pushed the price down to the Tuesday low of 5.70 euro. The shock didn’t last long and the price recovered very quickly to reach an intra-day high at 5.92 euro (just 2 cents below the 3DMA) and to close 1.4% higher at 5.87 euro.

Global positive mood helped the EUA Dec16 in climbing to 6.15 euro on Thursday, a level not seen since 17 May. The price got boosted by Brent that hit 50 USD per barrel in the morning. By the end of the day the price climbed back above the 30DMA again.

The first opportunity to react on the further delay of the rapporteur’s report was on Friday. 
Disappointed traders pushed the EUA Dec16 to 5.91 euro in the first half of trading. The contract recovered, however, in the afternoon and closed at 6.04 euro. 

The technical picture didn’t change significantly from last week. The price is still consolidating near the 6 euro level, apparently waiting for the rapporteur’s report.

The sideways movement since the end of April tightened the Bollinger bands and pushed the 20DMA below the 30DMA on Friday, which is a bearish signal. In addition, the MACD got close to the zero line as well, but is still consolidating at the moment. The RSI is at 55, in neutral territory. 

There are three main events this week that might put an end to the consolidation:

  1. The report of the rapporteur of the post-2020 reforms of the EU ETS is expected to be published this week. Depending on the content (ambition) the report might increase the price volatility of the EUA Dec16.
  2. The Organisation of the Petroleum Exporting Countries (OPEC) has a meeting on Thursday. As from time to time the correlation between Brent and carbon is getting stronger, any major decision made at this meeting can move not only the oil price, but also that of carbon.
  3. The European Central Bank has its monthly meeting on Thursday too. As we have seen in the past, comment of the ECB President Mario Draghi might impact the EUR/USD and (mainly through the dark spread) the price of EUA.

For the time being, we keep our neutral view on the EUA Dec16, emphasising the risk of higher volatility depending on the content of the rapporteur’s report about the post-2020 reforms and the OPEC meeting on 2 June (Thursday).

We see the first strong support at 5.70 euro (last week low) / 5.65 euro (May low). To the upside, the Bollinger band at 6.19 euro might be the first resistance, followed by the local high at 6.23 euro and a Fibonacci retracement at 6.53 euro.

Source: Bloomberg L.P.

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