Helped by the rally in Brent and the reduced auction supply, the EUA Dec16 gained 3.6% last week.
The EUA Dec16 opened at previous Friday’s settlement price of 4.73 euro on Monday. After a short hesitation which pushed the price to an intra-day low at 4.67 euro, the benchmark carbon contract increased steadily to reach 4.96 euro, a level not seen since 18 July.
Although the price opened relatively strong on Tuesday, negative signals from outside the carbon market pushed the EUA Dec16 on a declining slope. The price hit an intra-day low at 4.80 euro. The last hour of trading, however, brought some buyers to the market and the price jumped back to close at 4.88 euro. By the end of the day the benchmark carbon contract settled down 1.4%.
The price extended losses on Wednesday. It closed down 2.3% from Tuesday’s settlement price, just 2 cents above the daily minimum.
The EUA Dec16 had a quiet day on Thursday. Until the last hours of the day it moved in a tight range of 9 cents, between 4.72 and 4.81 euro. The price received negative signals from the energy mix in the morning, but the jumping oil prices supported it later in the day. By the end of the day the price climbed back to Wednesday`s closing level and finished the day unchanged.
The daily trading range was even narrower on Friday. The benchmark carbon contract opened at 4.88 euro, the settlement price of the two previous days before falling to an intra-day low at 4.82 euro. Despite the intra-day weakness the price closed 0.4% higher thanks to the rally in the price of Brent.
In the last four days the price consolidated close to the 5 euro level, between the Fibonacci retracement at 4.76 euro and the August high at 4.97 euro.
The hesitation below 5 euro pushed the 20DMA below the 30DMA again which can be considered as a bearish sign. This can be reinforced by the weak dark spread that holds utilities back from the carbon market.
In a negative scenario, the price could be supported by the Fibonacci level at 4.87 euro (also the 4.88 euro was three times opening or closing price last week) and another one at 4.76 euro. The next strong support is seen at the 30 and 20DMAs at 4.67 euro.
On the other hand, the RSI is in neutral territory (at 55) and the MACD very close to climb above the zero line which leaves some room for further appreciation.
The reduced auction volume and especially the fact that there won`t be any auction on behalf of the EU next week, might keep the EUA price near the 5 euro level.
Expectations on an oil production cut by the OPEC countries might provide additional boost to the commodity prices and therefore to the EUA as well.
Should the supportive factors above lift the price towards 5 euro, it has to break the August high at 4.97 euro first, before it could retest the July high at 5.08 euro.
Our base range for this week is therefore between 4.50 and 5.10 euro.
Source: Bloomberg L.P.