Monday, December 5, 2016

EUA Dec16: Political uncertainty pushed prices lower by 14% last week

Uncertainty about the ENVI vote on the post-2020 reform of the EU ETS and about the Italian referendum pushed down the EUA Dec16 by 14% last week.
The news about the faster than expected reduction of coal fired capacities put the EUA Dec16 under pressure on Monday. The price fell continuously during the day and hit a daily minimum of 4.65 euro. By the end of the day the price reduced its losses and closed at 4.75 euro, a loss of 25 cents or 5% from Friday.
The EUA Dec16 hit another 2-month low on Tuesday on the possibility of a delayed ENVI vote, higher EU energy efficiency targets and pessimism about the OPEC meeting. The depreciation fastened and the price even fell from the declining trend channel. A local low near 4.40 halted the depreciation.
The benchmark carbon contract halted the downward move and was little changed on Wednesday as the 30% energy efficiency goal announced by the Commission seemed to be priced in. After the UK EUA auction cleared, the bellwether contract started to trickle up. Supported by rallying oil prices on the OPEC agreement, the EUA Dec16 price reached an intra-day high at 4.81 euro. The price slipped down from there and closed at 4.61 euro, up 2 cents day-on-day. 
The EUA Dec16 moved in a 5 cents range on Thursday. Despite the positive opening mood (4 cents above Wednesday’s settlement price), the price fell quickly to 4.45 euro in the morning. The strong auction result, however, reversed the price direction and lifted it to an intra-day maximum of 4.65 euro. The tweet in the afternoon about the uncertainty of the December ENVI vote by the rapporteur pushed the price lower again to a new daily minimum of 4.40 euro. The settlement price was just 6 cents higher. The last two candles of the chart formed a bearish engulfing (again) suggesting that the price might continue its declining path.
The bearish engulfing proved right, as the price slipped to 4.25 euro on Friday, a level not seen since 22 September. It closed the week just 5 cents higher, with a loss of 14%.
The declining trend got confirmed by the negative MACD, some bearish engulfings and the 20/30DMA cross recently. There is also a head-and-shoulders form in the chart. Should it prove right, it points to a support level at 4.10 euro. 
Considering the risk stemming from the events of this week (“no” majority in Italy, no ENVI vote etc.), the price might fall even below that level and retest the 2016 low at 3.87 euro.
In a positive scenario, the price might retest the upper edge of the declining trend channel near 5.00 euro. This might be a case, if the MEPs in the environment committee of the European Parliament adopt ambitious amendments to the post-2020 reform of the EU ETS. The relative strength index (RSI) slipped below 30 end of last week and the price trades at the lower Bollinger band, suggesting that a correction might be in the cards.

Source: Bloomberg L.P.

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