Monday, December 12, 2016

EUA Dec16: ENVI vote to increase volatility this week

The benchmark carbon contract had a volatile week between 5-9 December and the aggregated volume was like in the time of compliance.
The price fell quickly below 4 euro on Monday. The benchmark carbon contract fell to a daily minimum of 3.97 euro, just 10 cents above the 2016 low before it recovered. By the end of the day, the EUA Dec16 reduced all its losses and closed 7 cents above the previous Friday’s settlement price.
The EUA Dec16 had another volatile day on Tuesday and moved in a range of 51 cents. The benchmark carbon contract had a weak start to the day and the weak energy mix exercised a pressure on it. The strong auction, however, helped the price to recover. In the last hour of trading, comments about a stricter MSR initiated a rally in the price which jumped to an intra-day maximum of 4.54 euro and finished the day with a gain of 3%.
Some late coming investors pulled the price to 4.62 euro Wednesday morning cheering about the prospect of an agreement in the ENVI committee. Falling power prices, however, dominated in the afternoon and pushed down the price to an intra-day minimum at 4.27 euro. The benchmark contract was not able to recover and closed just 3 cents above the daily minimum.
After a boring start the EUA Dec16 jumped up and down in tandem with the euro on the announcement of the ECB on Thursday. After hitting an intra-day low at 4.24 euro, the rally lifted the price to 4.65 euro and it remained in the positive territory until the market closed as many short positions might have been closed (+31 cents or 7%). Although 4.60 euro was a strong resistance in the recent days, the rally in the afternoon helped to form a bullish engulfing in the chart.
The price then hit a new December high on Friday at 4.78 euro due to some short covering early in the afternoon, but the closing was less ambitious as the price lost 15 cents in a daily comparison. 
This way the price retested the upper edge of the declining trend channel, but was not able to break above and reverse the trend. 
In the first half of last week the 20DMA slipped below the 200DMA (a bearish signal) and the price is still in a declining trend channel.
The main focus is on the vote in the environment committee of the European Parliament about the post-2020 reform of the EU ETS Thursday morning. 
Should the ENVI vote boost the price, the price might break out upwards from the channel. In a negative scenario the channel remains valid.
Another support might be the lack of auctions from next week. Daily EUA auctions will only resume 9 January.


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