Monday, June 13, 2016

EUA Dec16: Lowed edge of the range might be retested

Helped by the rally in other commodities the EUA Dec16 gained almost 5% on Monday. The price broke above the 20 and 30DMAs. It also broke above the May high at 6.23 euro by hitting an intra-day high at 6.29 euro. The rally lifted the price above the upper Bollinger band (6.22 euro).

The EUA Dec16 had a volatile day on Tuesday as Brent and German power were looking for direction as well. After opening flat to Monday’s settlement price, it lost more than 1% before jumping to a new monthly high at 6.38 euro. It ws not able, however, to keep the gains and closed at 6.12 euro, just 1 cent above its intra-day low.

After another volatile start, the EUA Dec16 consolidated above 6.10 euro on Wednesday. After opening 2 cents above Tuesday’s close, the price fell quickly to an intraday low at 6.04 euro, before jumping to 6.21 euro when the Brent hit a new 10-month high. By the end of the day it closed 1 cent below Tuesday’s settlement price.

The strength from the morning disappeared quickly from the chart of the EUA Dec16 on Thursday. The price fell to an intra-day low at 5.99 euro, where a Fibonacci level halted further losses. Carbon received negative signals from the energy mix with the front year German power and the Brent falling from recent highs. Plummeting coal prices were not able to counterbalance the fall in power. As a consequence, the dark spread worsened further.

With global investor mood getting risk off as the day of the Brexit vote approaches, the EUA Dec16 fell hand in hand with other commodities on Friday. (Or did traders sell in order to be not distracted from the 2016 and be able to focus on their favourite team?) Despite the short lived rally in the last ten minutes of trade the price closed near its weekly low.

With commodities that were overbought earlier in a correction phase, an increased auction volume and many investors being risk-off before the Fed meeting on Wednesday and the UK referendum, the benchmark carbon contract is expected to remain range bound next week as well with higher chances to trade below the 6 euro level. Our base range is 5.70-6.20 euro.

The first support is the 5.70 euro which has been tested three times between 23-25 May. Below this level the May low at 5.65 euro could stop the price from falling further.

To the upside, there are several resistances around 6.00 euro. The 20 and 30DMAs and a Fibonacci retracement can be found there. The next resistance is near 6.20 euro (a local high several times in May) before last Tuesday's intra-day high at 6.38 euro could be retested.

Source: Bloomberg L.P.

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