Monday, June 20, 2016

EUA Dec16: Markets under pressure from Brexit fears

Renewed fears about the UK leaving the EU and worse than expected Chinese investment data pushed all markets down Monday morning and the carbon market was no exception. Despite some recovery during the day the contract closed at 5.86 euro (-1.7% d/d), just 2 cents above the intra-day low of 5.84 euro. As the price broke and closed below the support level at 5.89 euro, the space is open for further declines.

The EUA Dec16 fell hand in hand with other commodities Tuesday morning and hit an intra-day low at 5.74 euro. In the last hour of trading buyers invaded the trading floor and lifted the whole energy mix. German front year power turning positive had a supportive effect on carbon as well. The benchmark contract closed the day at 5.86 euro, flat to Monday’s settlement price. The doji candle indicated the hesitation about which direction to take.

Signals were mixed Wednesday morning with the components of the energy mix trading in the negative territory while stock markets expected to open higher. The benchmark carbon contract opened cautiously before the Fed meeting in the evening. As the market was waiting for the Fed meeting, the carbon moved in a narrow range of 11 cents. By the end of the day, the benchmark contract gained 5 cents or 0.9%.

The carbon market received negative signals Thursday morning (Brent and German front year power in the negative territory, stock index futures in the red). As a consequence, the EUA Dec16 opened at 5.87 euro (4 cents below Wednesday’s settlement) and slipped continuously until 5.82 euro in the first hour of trading. By the end of the day it closed at 5.71 euro, just one cent above the intra-day low at 5.70 euro.

The decline continued on Friday, when the price hit the May low at 5.65 euro. This support halted the decline, but no major recovery could be seen and the price closed just 2 cents above the support.

The risk of the Brexit vote and the huge auction supply might weigh on the price this week until Thursday and the benchmark carbon contract might slip further. The next support below the May (and last week) low of 5.65 euro is the Fibonacci line a 5.56 euro.

Higher power prices and a referendum outcome on the last days of the week showing that the UK prefers staying in the EU, might support the price this week. The first strong resistance to break is at 6 euro.

Source: Bloomberg L.P.

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