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.

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