Monday, October 31, 2016

EUA Dec16: 20DMA to be the first strong support

After the rally the Friday before the EUA Dec16 took a break and declined by 1.4% last Monday. The price opened 1 cent below the settlement price of the previous Friday and even tried to climb higher hitting an intra-day high at 5.98 euro, but it was not able to keep its gains and break above the 6 euro level.
The benchmark carbon contract opened higher early Tuesday and reached an intra-day high at 5.96 euro before retreating steadily. The auction cleared weaker than normal and the result triggered abrupt selling. The EUA Dec16 contract plummeted to 5.62 euro before recovering in the afternoon session. The Dec16 contract ended at 5.81 euro, flat from Monday’s close.
Supported by higher power prices and an appealing dark spread, the EUA Dec16 had a strong start to the day on Wednesday. It opened at 5.84 euro, a 3 cents gap from Tuesday’s settlement. The price increased continuously during the day to hit an intra-day high at 6.04 euro. This was the first time in five days, when the price managed to climb above the 6 euro level. It was, however, not able to remain above the psychological limit and closed at 5.94 euro, still a gain of 2.2%.
The price moved in a range of 22 cents on Thursday. After hitting an intra-day high at 5.97 euro in the morning hours, the price declined continuously during the day to reach a daily low at 5.75 euro. By the end of the day it managed to recover slightly, but still finished with a loss of 2.2%.
The intra-day range was even narrower during most of Friday (5.71-5.86 euro), but some late buyers arriving in the last 10 minutes of trading lifted the price to an intra-day high of 5.91 euro. The price finished just 3 cents lower, resulting in a gain of 7 cents or 1.2%.
The sideways movement of the last days led the EUA Dec16 to the lower edge of the increasing trend channel. It consolidated below 6 euro, a resistance level tested almost every day of the past week. From the downside, however, the 20DMA proved a strong support.
Without major carbon market events scheduled for this week the consolidation might continue, although power prices and central bank meetings can overwrite the picture. The first support is the 20DMA at 5.69 euro, followed by a local low near 5.50 euro. To the upside, the first important resistance is the 6.00 euro level, followed by the October high at 6.14 euro.

Source: Thomson Reuters

Monday, October 24, 2016

EUA Dec16: Overbought power might put a cap on carbon's potential gains

The EUA Dec16 closed its sixth week in a row with gains last Friday (+1.38% w/w). 
After opening 1 cent above previous Friday’s settlement price, the EUA Dec16 increased continuously on Monday as it received support from higher power prices, the improving dark spread and a nice auction cover ratio. The benchmark carbon contract reached an intra-day high at 6.04 euro (just 5 cents below the October high), but it was not able to maintain its gains and slipped back to close at 5.87 euro, just 6 cents above the previous settlement price.
The EUA Dec16 opened with a 4 cents gap up on Tuesday. Supported by the news that five French nuclear power plants will be taken off-line in the next three months, the price hit a new 4-month high at 6.14 euro. By the end of the day, however, the price returned below 6 euro.
The benchmark carbon contract opened in a positive mood with a 3 cents gap up on Wednesday, and it increased to an intra-day high at 6.06 euro, but it lost steam very quickly and fell hand in hand with European power prices. It closed the day at 5.67 euro, just one cent above the intra-day low at 5.66 euro. The five white candles of the previous days were followed by a black one on Wednesday. Unfortunately, this last candle had a bigger body than the former one forming a bearish engulfing on the chart.
Although the benchmark carbon contract attempted to climb higher on Thursday, it lost 1.6% by the end of the day. After hitting an intra-day high at 5.78 euro, it slipped lower continuously and fell to an intra-day low at 5.50 euro. By the end of the day it recovered somewhat, but closed only 8 cents above the daily low. The decline of the last two days pushed the price close to the lower edge of the increasing trend channel
The strength of the US dollar and the news about France giving up its plan of the carbon price floor were expected to weigh on the price on Friday, but the negative effect did not last long. The price opened with an 8 cents gap down, but reversed its direction quickly to jump to an intra-day high at 5.95 euro. The price was able to keep its gains until the last minute of trade and finished 5.6% higher.
Friday’s candle formed a bullish engulfing and lifted the price back above the lower edge of the increasing trend channel. (See the chart below.)
Should the positive effect of the increasing power prices persist, the EUA Dec16 could climb above 6 euro again this week. 
On the negative side, both power and carbon markets are already in or close to overbought territory, which increases the probability of a correction. The German front year power touched the 200DMA last Friday for the first time since 2011 and its RSI is at 74 (overbought). 
We therefore remain cautious for this week. Our base range is therefore between 5.40 and 6.14 euro.

 Source: Bloomberg L.P.

Monday, October 10, 2016

EUA Dec16: Consolidation after filling the Brexit gap

Supported by rising power and gas prices, the EUA Dec16 gained almost 15% and even touched 6 euro last week.
The EUA Dec16 opened with a 6 cents gap up at 5.02 euro and climbed continuously last Monday to hit an intra-day high at 5.39 euro. The price didn’t trade this high since the Brexit referendum. The 200DMA, however, stopped the appreciation (for the second time in 3 days).
Despite opening with a 5 cents gap up Tuesday morning,  the price was not able to maintain its gains. From its 5.36 euro opening price it slipped continuously during the day. The lowest level hit was 5.11 euro, but it recovered by the end of the day. It closed at 5.21 euro, a loss of 10 cents or 1.9%. For the third time, the 200DMA at 5.37 euro stopped the appreciation.
The positive signal received from the 20DMA crossing the 30DMA got confirmed on Wednesday. The price opened with a spectacular 12 cents gap up. After some hesitation in the morning hours, the price jumped above the 200DMA at 5.36 euro (for the first time since January) and rose to an intra-day high at 5.52 euro. This way the price reached the intra-day low on the day before the Brexit referendum (5.50 euro) which made some market participants think that the gap left after the referendum has been filled. The real upper edge of the gap was however the 5.65 euro level (the closing price on the day of the referendum) which left some space for further gains. The price received support from a stronger than usual UK auction, the continuing rally in the commodity prices and a surprising decline in the US crude oil inventories.
Despite opening with a 4 cents gap down at 5.44 euro, the EUA Dec16 appreciated step by step on Thursday. It broke several resistance levels, filled the gap left after the Brexit referendum and climbed even above 6 euro. The highest level hit during the day was 6.09 euro. It closed, however, below 6 euro, at 5.86 euro as profit taking started late in the afternoon.
The decline continued on Friday, but the 5.50 euro level proved a good support during the day.
Despite the correction in the last 1.5 days the increasing trend is still valid. 
Should power and / or oil prices support the carbon this week, the next resistance after last week’s high at 6.09 euro is a local high from June at 6.38 euro.
High cover ratios in last week's auctions and an increasing volume traded in the Dec17 and Dec18 contracts suggest that utilities increased their activity. This might be supportive for the carbon price.
Political activity might increase the volatility in the carbon market, but not in the usual way. 
Although the European Parliament's industry committee votes about the post-2020 reform of the ETS, we do not expect major surprises from the event as the compromise amendments of the four biggest political groups are known.
But oil exporting countries will meet again, this time in Istanbul. Should the countries surprise markets with an agreement about the details of the oil production cut (they agreed on last month in Algiers), the market might react in a positive way. (Especially, after Russia saying last week that it only goes to Istanbul for negotiations, but not for a deal.)
If the correction continues (as the RSI is still very close to overbought territory), the first strong support is the 200DMA at 5.32 euro followed by the psychologically important 5.00 euro level.
All in all, we expect the price to consolidate between the 200DMA and last week's high in the next couple of days.

 Source: Bloomberg L.P.

Monday, October 3, 2016

EUA Dec16: Consolidation near 5 euro expected

Supported by European power prices, the benchmark carbon contract gained 9.25% last week.
The EUA Dec16 opened 1 cent above Friday’s settlement price last Monday and after falling to an intra-day low at 4.48 euro, it climbed higher and finished the day at 4.62 euro, up 8 cents or 1.8%. For the second time, it was the Fibonacci level at 4.72 euro that stopped the appreciation. The price received support from higher power prices in Europe. It was also the first day of the International Energy Forum in Algiers and the host country spoke up the oil price by saying that any agreement would be possible.
After four white candles the benchmark carbon contract, however, got under pressure on Tuesday. It opened at 4.61 euro, 1 cent below Monday’s settlement price and although it spent some minutes in the positive territory, it closed the day 19 cents or 4.1% lower, as hopes for an oil production freeze faded.
Opening with a 3 cents gap up at 4.46 euro, the EUA Dec16 appreciated continuously in Wednesday’s trading thanks to the rally in French and German power prices. It hit a new local high at 5.02 euro, a level not seen since 18 July. The traded volume was the second highest after the day of the Brexit referendum which confirmed the positive momentum.
With an unexpected last minute agreement amongst OPEC members to limit production to between 32.5-33 million barrels per day, carbon prices received a boost Thursday morning. The price opened with a 4 cents gap at 4.99 euro and jumped to 5.37 euro. The price filled half of the gap left after the Brexit referendum (between 5.24 and 5.65 euro). A correction in the oil and power prices in the afternoon, however, did not leave the EUA Dec16 untouched. The price closed at 5.02 euro, a gain of 7 cents (+1.4%) from Wednesday’s settlement price.
The price calmed down and oscillated around 5 euro on Friday. The correction in oil and power prices exercised a negative impact on the price, but when the price fell below the psychologically important round figure, buyers appeared. The closing price at 4.96 euro is 9.25% above the settlement price of the Friday before. 
The fact, however, that the price was not able to stay above the 5 euro level, might make some market participants hesitating about opening new long positions. (The same is true for the front year German power which was not able to stay above the 30 EUR/MWh level.) 
In the case of a correction, there are some weak support levels at 4.80 and at 4.62 euro (both Fibonacci retracements). The strong support is seen near 4.50 euro. There is another Fibonacci level at 4.44 euro, the 30DMA is at 4.41 euro and the 20DMA at 4.32 euro. 
Another possible scenario is that the price only returned to the upper Bollinger band (4.99 euro) after closing outside the band for two days and that the price continues its path upwards in the coming days. Besides the energy mix the missing Monday auction (Germany celebrates its reunification) might be supportive for the price. In this case the price has to break the key 5 euro level first before it could retest last week's local highs at 5.12 and 5.37 euro.
All in all, we expect the benchmark carbon contract to consolidate near the 5 euro level this week. Our base range is between the 30DMA (at 4.41 euro) and the 200DMA (at 5.40 euro).

Source: Bloomberg L.P.