Monday, November 28, 2016

EUA Dec16: Sharp losses on bearish technicals

The weak energy complex pushed the EUA Dec16 down to a new local low at 5.31 euro on Monday. When the price fell below the support of 5.38 euro, the decline got faster as many stop-loss orders might have been triggered. The price, however, didn’t reach the 200DMA at 5.24 euro (also a Fibonacci level). A correction started in the afternoon and the price appreciation got faster when the news first appeared about the rapporteur of the post-2020 reforms to propose ambitious changes to the MSR. By the end of the day the losses have been reduced to 10 cents or 1.8% and the price returned into the comfort zone between 5.40 and 6.10 euro.
The benchmark carbon contract moved in a narrow range of 11 cents on Tuesday. The intra-day range was the narrowest since 13 September showing the hesitation of the price about which direction to take. The price closed just 3 cents higher (+0.5% d/d), but the decline of the last days pushed the MACD into negative territory, which is a bearish signal.
After opening 3 cents below Tuesday’s settlement price, the EUA Dec16 reached an intra-day high at 5.64 euro on Wednesday, before falling back to 5.35 euro in the afternoon on news about the restart of a 900MW French reactor.
Pushed down by a weak auction result and expensive coal, the benchmark carbon contract declined to an intra-day low at 5.21 euro on Thursday. By doing so the price fell below the 200DMA and a Fibonacci level. By the end the day the price was able to recover and closed at 5.36 euro, down by 4 cents or 0.7% only.
The negative signals (MACD below zero, price falling below the 200DMA) proved right and the EUA Dec16 dived below 5 euro on (Black) Friday to hit an intra-day low at 4.94 euro, a level last seen in September. By the end of the day it managed to climb back to 5 euro, but not above the 200DMA. The list of the negative signals has been expanded by another one: the 20DMA fell below the 30DMA.
Taking into consideration all the above, we expect the price to fall further, although the several meetings of this week represent a risk to the price that can result in a high volatility. 

The Council’s working party on the environment continues discussing the post-2020 reforms of Wednesday. Also the shadow rapporteurs of the ENVI committee will debate the same topic this week. Any leaked information from these meetings can increase the volatility of the EUA price.
The European Commission will present its energy union package, including proposals to update the energy efficiency and renewables directives to align  them with the 2030 climate and energy framework, as well as a proposal to redesign of EU's electricity market on Wednesday. Higher ambition in these fields would affect the carbon price negatively.
The OPEC meeting on Wednesday is not directly related to the carbon market, but as we could observe a high correlation between the two commodities, the outcome of the meeting in Vienna might also have an impact on the EUA price.
Last, but not least, the auction volume increases to almost 18 million allowances this week adding pressure on the price. (In addition, the 2017 auction calendars published last Friday show that the supply will increase significantly in a yearly comparison.)
All in all, we are rather bearish for this week, but due to the heavy losses of the last week the price might simply consolidate around 5 euro.

Source: Thomson Reuters, ICE

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