Monday, July 25, 2016

EUA Dec16: Positive technical indicators proved false

Despite the positive signals from the technical analysis the week before, the EUA Dec16 lost 7.30% last week.
After a strong start the EUA Dec16 switched to correction on Monday. The price opened at 4.98 euro, 5 cents above previous Friday’s settlement price. In the first minutes of trading the price hit an intra-day high at 5.08 euro (which was the weekly high), a level not seen since 27 June. Already in the first hour of trading, however, the correction started and the price fell step by step to an intraday low at 4.83 euro, just one cent below the 20DMA.
The EUA Dec16 was not able to remain above the 20DMA and above the increasing trend line on Tuesday. The benchmark carbon contract opened 1 cent above Monday’s settlement, increased to 4.90 euro, but then fell continuously thanks to the worsening German dark spread. The only positive factor was that the decline was not confirmed by a significant volume as just 9.2 million allowances traded in the EUA Dec16 versus the July average of 14.4 million.
The benchmark carbon contract hit an intraday low at 4.58 euro on Wednesday, the lowest level since 13 July. The price recovered slightly in the afternoon thanks to oil inventory data and closed 2 cents (+0.04%) above Tuesday’s settlement price. Wednesday’s candle was a doji, indicating indecision in the market.
The price flirted with the 20DMA in Thursday’s trading. After opening 3 cents above Wednesday’s settlement the price fell to 4.67 euro. The price then reached an intraday high at 4.75 euro. The daily range of 10 cents was the lowest since March 2016. The traded volume in the EUA Dec16 of 7.2 million allowances was also lower than the July average.
Friday’s price performance was very similar to that on Thursday. Just the price slipped further down hitting a new weekly low at 4.54 euro. The price could not recover by the end of the day and closed just 3 cents above the daily low.
The weekly chart shows that the price was not able to break out from the 4.50-5.00 euro range. The last 5 candles draw a declining path in the chart of the EUA Dec16.
Should the perspective of the reduced auction volume in August help the price in climbing higher, the price could retest the upper edge of the range.
Further weak performance of the dark spread, economic risks due to Brexit and a strong US dollar could push the price out of the above mentioned comfort zone. In this case the price could retest the local lows at 4.36 and 4.28 euro.

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