Monday, July 18, 2016

EUA Dec16: Price could retest the Brexit gap this week

Despite a strong opening (4 cents above the settlement price of last Friday) the EUA Dec16 lost steam and fell to an intraday low at 4.41 euro on Monday. This is 3 cents below last week’s minimum. After an auction that cleared in line with the secondary market price the benchmark contract climbed higher, but the German dark spread falling below 2 euro in the afternoon pushed the price fell back towards its daily low.

After five black candles (and an RSI at 30) there came a white one on Tuesday. The EUA Dec16 opened 3 cents below Monday’s settlement and hit a new 7 day low at 4.36 euro. A correction in the Brent (Iraqi exports declined due to a pipe leak) and in the front year German power helped the carbon to climb higher. The price gained more than 4% and finished close to its intraday high of 4.67 euro. The last two candles formed a bullish engulfing which is generally considered as a positive sign.

The bullish engulfing “delivered its promises” and the EUA Dec16 gained more than 3% on Wednesday. After opening 3 cents above Tuesday’s settlement price, the benchmark carbon contract fell shortly to 4.54 euro. A strong auction result, however, gave wings to the price and it hit an intra-day high at 4.86 euro in the afternoon. From this level it only retreated slightly to close at 4.79 euro, 3.5% above Tuesday’s settlement. Wednesday’s rally added another positive signal to the bullish engulfing from Monday and Tuesday: the MACD crossed the signal curve.

The EUA Dec16 continued its rally Thursday morning and hit a 7-day high at 4.95 euro. This level is above the declining trend line that started after the Brexit referendum. The 20DMA, however, stopped the price and pushed it back lower. The price closed 1 cent below Wednesday’s settlement.

After Thursday’s hesitation the price got under renewed pressure Friday morning from a weak energy complex. The benchmark contract fell to an intraday low at 4.63 euro, but a strong auction managed to pull the price higher again. In the last hour of trading the price received additional boost from the extension of the shut down of the biggest UK gas storage which lifted all prices in the energy complex. The price gained 20 cents (+4.2% d/d) and closed at its weekly high.

As mentioned, there are couple of bullish signs in the chart right now: The MACD cross, the bullish engulfing and the close above the declining trend line. 
Should the price be able to keep its strength this week, it might try to refill the gap left after the Brexit referendum between 5.24 and 5.65 euro. This task could be made harder as the 30DMA is also at the 5.24 euro level.
In a negative scenario, the first strong support is the 2016 low at 4.28 euro.

Source: Bloomberg L.P.

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