Monday, January 25, 2016

ECB helped markets in climbing higher, including carbon

The EUA Dec16 started the week on a roller coaster . After opening 10 cents above Friday’s settlement price, it fell to a new 10-month low at 6.56 euro in the first hour of trading. Recovering oil and power prices pulled the price of allowances to 6.69 euro before noon, but the disappointing result of the first auction of the week pushed it down to the daily low again. Following waves in German power the EUA Dec16 reached 6.79 euro in the afternoon, before it closed at 6.76 euro, 0.6% above Friday’s settlement price.

Tuesday was less volatile with an intraday range of 21 cents only, between 6.74 and 6.95 euro. The price finished the trading 10 cents above Monday's settlement price.

After the first two short white candles came two huge black ones. The price hit new 15-month low on Wednesday and on Thursday as well. First it fell in sympathy with other commodities like oil, gas and power. On Thursday it was depressed by the more than 1% weakening of the euro versus the US dollar after the President of the European Central Bank assured markets that the Bank would do anything it can to counterbalance the downside risks affecting the European economy. The hint on more stimulus (money supply) from the Central Bank weakened the euro that has a negative effect on the carbon price through the dark spread.

The new 2016 low hit on Thursday was at 5.87 euro. By Friday market either thought it’s time for a rebound and profit taking from short positions or realized that the ECB President actually promised economic stimulus that would help in avoiding the financial crisis we saw in 2008. The price jumped to an intraday high at 6.55 euro and closed the day with a 2.4% appreciation.

In a weekly comparison, however, the EUA Dec16 lost more than 5% again.

After falling by more than 20% in 2016, the EUA Dec16 entered officially a bear market. The price could continue on this path, should the abundant auction supply and the delay of political negotiations about the reform of the system weigh on the price. The first support is last week’s low at 5.87 euro followed by the October 2014 low at 5.75 euro and by 5.00 euro.

On the other hand, the overall message of Mr. Draghi was positive and if it gets echoed by the US Federal reserve this Wednesday, it might turn the markets higher. Carbon included. In a positive scenario, the price might test the Fibonacci level at 6.45 euro, the Marubozu line at 6.55 euro and the other Fibonacci level at 6.81 euro before climbing above 7 euro again.

Source: Bloomberg L.P.

Monday, January 18, 2016

EUA Dec16 below 7 euro

The EUA Dec16 didn’t care about the fact that the relative strength index (RSI) finished the week before deep in the oversold territory already. The benchmark carbon contract finished the week 8% lower again and pushed the RSI even lower.

The week started in a negative mood and the price fell to a new 2016 low at 7.11 euro. The contract extended the losses until 7.01 euro on Tuesday, but it managed to climb back by the end of the day. The doji candle of the day made market optimistic about a turn around and Wednesday seemed to confirm hopes. The price opened above Tuesday’s close and gained 2% in a daily comparison.

Thursday and Friday, however, bears took over the market and pushed the price lower continuously until it fell below 7 euro and hit a new 10-month low at 6.68 euro on Friday.

There are (and were last week already) technical signals saying that there should be a correction in the price, but the market doesn’t seem to care about technical analysis at the moment.

The RSI is deep in the oversold territory (at 17). The MACD at low levels not seen since April 2014. In addition the price fell from the two year increasing trend channel.

The first support level is the lower Bollinger band at 6.84 euro, followed by last week’s low at 6.63 euro, and local lows at 6.50 euro and 6.38 euro.

Only 14 million EUAs will be auctioned this week, 0.3 million less than last week. This might support the price of allowances. Should buyers find current levels attractive enough to purchase EUAs, the resistance levels the price has to break are some Fibonacci lines at 7.03 and 7.28 euro, and some Marubozu lines at 7.36 euro and 7.96 euro. Also, if we check the long term (three years chart), we find that last week’s low is at the lower edge of the trend line increasing the probability of a correction.

Source: Bloomberg L.P.

Monday, January 11, 2016

EUA Dec16 got oversold after starting the year with 10% decline

Although the EUA Dec16 managed to close the last trading day of 2015 one cent above the previous settlement price and it was the best performing commodity all around the world, it started the new year with sharp declines as negative news weighed on the market. The benchmark carbon contract closed each day of the week with sharp losses.

It would be difficult to mention one specific reason for the move. Investors turned their back to risky assets in general after weaker than expected Chinese data provoked worries about the slowing economy there. Stock indices around the world fell sharply, the Brent lost 10%, German front year power fell to levels not seen since 2003. The carbon market also seemed missing the support of utility buyers as the daily EUA auctions didn’t start yet in the first week of the year.

The price fell below the December 2015 low at 7.96 euro and below the 200 day moving average Wednesday. Latter didn’t happen since last March. More importantly, the price fell from the increasing trend channel that started in 2014 in parallel with back-loading. The price got heavily oversold with the relative strength index plummeting to 20, deep below the critical 30 level that already indicates oversold prices.

The price fell to 7.40 euro on Thursday, a level not seen since June last year. The price looked like a falling knife that nobody dared to catch. 

Global investor mood seems still to be negative with Asian stock indices falling to their lowest levels in four years and Brent losing further 2% this morning. The daily EUA auctions restart this week with volumes being some 0.5 million higher than last year. Carbon market participants might also stay at the side lines of the market as the timeline of the post-2020 ETS reforms seems to be pushed forward and parliamentary committees still spit about their responsibilities. Should the bears continue to dominate the market, the price could retest 7.40 euro. Below this level the next support is a Fibonacci level at 7.29 euro (also support and resistance level several times in 2015).

Should the restart of EUA auctions, however, bring utilities (and other buyers) to the market, the first resistance is at 7.80 euro, a close and an open from last week. This is followed by a Marubozu line at 7.95 euro, before the price could retest the 8.00 euro level where the 200 day moving average is waiting.

Source: Bloomberg L.P.

Monday, January 4, 2016

EUA Dec16: MACD cross might be supportive this week

With most of the UK still on holidays, the EUA Dec16 had a sleepy start to the week. The price moved in a range of 4 cents between 8.28 and 8.32 euro in the first half of the day. On the positive side, it opened with a  2 cents gap above the settlement price of the Friday before. The price started to rally in the last hour of trading when it jumped from 8.32 euro to 8.40 euroland closed 1.5% above Friday’s settlement price.

EUA prices softened on Tuesday, ignoring the upward move in power and crude oil prices. The Dec16 contract opened higher at 8.40 euro, two cents above the previous close. Prices then gradually drifted lower throughout the afternoon to intraday low at 8.29 euro. The bellwether contract recouped some losses in the final hour of trading to close the session at 8.34 euro, down 0.04 euro from the previous close. Trading volumes are slightly higher, but remained at low levels with 3.1 million allowances changed hands on ICE for the Dec16 contract.

On Wednesday the EUA Dec16 closed another day with declines. It opened at 8.33 euro, 1 cent below Tuesday’s settlement price and declined during the whole day until hitting the weekly low at 8.26 euro. With this move, it closed the gap left from Monday/Tuesday. The gap therefore ceased to function as a support.

The benchmark contract opened at the same level (8.33 euro) on Thursday and declined during the whole day to hit an intra-day low at 8.27 euro (one cent higher than the day before) and to the week and the year 2016 at 8.29 euro.

The EUA Dec16 gained 11% in 2015 and we expect the long term increasing trend to continue in 2016 as well.

Although the MACD crossed the signal curve last week, as the first week of 2016 lacks EUA auctions and political news, we have a neutral outlook for the week. The price might remain in the range we saw in the last week of 2015: between 8.20 and 8.40 euro.

Source: Bloomberg L.P.