Monday, February 29, 2016

EUA Dec16: Continuous supply keeps a pressure on the price

Supported by rising oil prices the EUA Dec16 opened Monday 7 cents above last Friday’s settlement price and after a short hesitation it rallied to 5.49 euro in the afternoon. After having tested it twice the week before, the price finally managed to break above the 20DMA.

The Brent which pulled the price higher recently, failed to support the EUA Dec16. The price opened 2 cents below Monday’s settlement price on Tuesday and left a 1 cent gap before turning lower. The contract was falling the whole day long until it reached an intraday low at 4.92 euro. Despite losing almost 9%, the price did not return into the declining trend channel of 2016.

The decline continued Wednesday morning as the Brent got under pressure from Saudi Arabian and Iranian comments. The price fell to a weekly low at 4.67 euro, just 5 cents above the 22-month low of 4.62 euro, but recovered by the end of the day to close at 4.87 euro, 4 cents below Tuesday’s settlement price.

Thursday’s white candle lifted the price above 5 euro, where it consolidated on Friday as well.
In the last three weeks the price moved in a channel between 4.62 and 5.50 euro. It slowly slipped out sideways from the declining trend channel and although it didn’t change the trend yet, the fact that it didn’t hit a new 22-month low since 11 February could make some market participants optimistic regarding the price performance in the next days.

On the other hand, the huge supply (everyday auctions and the 2016 free allocation being handed out these days) and the weak energy prices continue to weigh on the price.
After the psychologically important 5 euro level, the next strong support is seen at 4.62 euro. This level has been tested twice already in February, but the price stopped 5 cents above this level last week.

To the upside, the 20DMA at 5.15 euro represents the first resistance, followed by 5.50 euro, also tested three times recently. The 30DMA is just 4 cents above this level.

All in all, there seems to be a strong range between 4.62 and 5.50 euro, that keeps the price for the time being.

Source: Bloomberg L.P. 

Monday, February 22, 2016

EUA Dec16: Above the declining trend channel

Despite the relatively positive sentiment in global markets on Monday, the EUA Dec16 was not able to climb higher. It opened 1 cent below Friday’s settlement price, but fell steeply below 5.00 euro. After falling to 4.87 euro, the price seemed to stabilize, but the decline got faster in the closing hour and the price closed more than 5% below last Friday’s settlement price

Tuesday’s pattern was similar. After opening slightly higher, the EUA Dec16 continued its declining path. The depreciation got faster in the afternoon when the price fell to an intraday low at 4.64 euro, just 2 cents above the 2016 low of 4.62 euro. By the end of the day the price climbed slightly back and closed 2.3% below Monday’s settlement price.

Wednesday started with the retest of the 2016 low at 4.62 euro. Prices then climbed up and rose to above 5 euro in the afternoon. The bellwether contract rose to intraday high at 5.14 euro before it closed the session at 5.10 euro, up 0.40 euro (+8.3%) day on day.

The EUA Dec16 opened Thursday 4 cents above Wednesday’s settlement price and jumped to a daily high at 5.39 euro in the morning hours already. After hitting this level, however, the price consolidated between 5.20 and 5.30 euro. The benchmark contract remained above the declining trend channel which is a positive sign.

Friday was about profit taking, but still, last week was the first in 2016 the price managed to close with gains.

There are many positive technical signals. The Dec16 contract has convincingly broken the downward trend since January last week. In addition, the price touched the 2016 low at 4.62 euro twice, forming a double bottom that generally is a signal of a trend reversal. This implies further potential to the upside for the bellwether contract. 

The clean dark spread, however, narrowed significantly last week and might limit the upside. Also the outlook for further EUA supply in form of free allocation for the calendar year 2016 keeps the price under pressure. The supportive signals from Brent seemed to vanish on Friday as well.

In a positive scenario, the price has to break the 20DMA at 5.42 euro first, before testing the 30DMA at 5.88 euro. Should the abundant supply push the price lower, the first support is 5.00 euro, before the 2016 low at 4.62 euro could be retested.

Source: Bloomberg L.P.

Monday, February 15, 2016

EUA Dec16 still in the declining trend channel despite Friday rally

The EUA Dec16 continued its free fall last week as well hitting a new 2016 low every day except Friday. Although the candles were smaller day by day, they were all black until the last day of the week.

Although the hammer candle from Tuesday suggested that the price might have found a bottom, the decline didn’t stop on Wednesday and the price reached a new 2016 low at 4.62 euro on Thursday, a level not seen since March 2014.

The only bright spot on the chart is Friday’s white candle, something we didn’t see since 2 February. 

The first positive point is that the price didn’t fall to a new local low on the last day of the week. 
Helped by a recovery in the price of Brent and front year German power, the benchmark carbon contract climbed close to 5 euro in the morning. The strong auction result pulled the price to 5.07 euro for a moment, but then it slipped back below 5.00 euro again. The afternoon brought buyers back to the market and the price rallied to 5.17 euro.

Despite the strong Friday performance, the price remained in the declining trend channel that started in January. Also the last 10-minutes candle of Friday’s chart might be a warning signal, as the price was not able to stay at 5.17 euro, but fell to 5.07 euro by the time the market closed.

In order to break out from this declining trend channel, the price would have to break above 5.20 euro and stay there. The first critical level is though at 5.00 euro. After 5.20 euro there is a Fibonacci retracement level at 5.50 euro that might halt the price from advancing further in the next couple of days. 

To the downside the first support is the 2016 low at 4.62 euro. Below this level there is a Fibonacci level at 4.39 euro, but the really strong support might be at 4.27 euro, the low from March 2014.

Source: Bloomberg L.P.

Monday, February 8, 2016

EUA Dec16 left one question mark (doji candle) last Friday

Markets received a hit Monday morning from China again and got on a sharply declining path. Manufacturing activity in the world’s second biggest economy decreased for the sixth consecutive month, signalling its weakness. The weak data pushed all commodity prices lower. The Brent oil lost 4% and the German power price slid 2.5%. The price of the EUA Dec16 fell below 6 euro again and closed the day with a loss of more than 6%.

Despite opening above Monday’s settlement price, the benchmark contract slipped quickly to a new 20-month low at 5.46 euro on Tuesday. At 5.50 euro, however, some investors might have started taking profit from short positions and the price closed 2.3% above Monday's settlement price.

The rest of the week didn’t bring too much excitement the upper limit being Tuesday’s high at 5.85 euro and the lower limit around 5.50 euro. Traders with long positions only had the fingers crossed on Friday when the price fell to 5.47 euro again, just one cent above the 2016 low.

Although the relative strength index (at 25) suggests that the price is oversold, the declining trend in the EUA Dec16 is valid and there is no sign of a turnaround yet. There seems to be an interesting pattern in the last couple of weeks: there is a big black candle on Mondays, but then no real excitement until the end of the week.

Until now all weeks of 2016 brought a new local low. The question is when this trend ends.

The signs from the energy mix, the abundant auction supply and the overall declining trend suggest that further declines might be in the cards this week. Last week’s low at 5.46 euro is the first support level, followed by the 5.00 euro level where the price relaxed between end of 2013 and beginning of 2014.

Should the recent small candles and last Friday’s doji indicate that the price is consolidating and looking for higher levels, the first resistance it has to break is at 5.85 euro. This level halted the price three times last week. Above 6.00 euro (at 6.04 euro) we can find a Marubozu line and then the 20-day moving average at 6.32 euro would be the next resistance.

Source: Bloomberg L.P.

Monday, February 1, 2016

EUA Dec16: Time for consolidation after 30% loss in January

Last Monday, the EUA Dec16 closed below 6 euro for the first time since October 2014. The contract fell to an intraday low of 5.72 euro before rebounding slightly to close at 5.91 euro, some 0.45 or 7% lower compared to the previous close. With surrounding markets (Asia, oil, power) under pressure, the price fell to 5.61 euro on Tuesday, a level not seen since June 2014. The trend was clearly downwards in the first half of the week.

The EUA Dec16 contract dipped below the 6 euro level again on Wednesday. The loss in the benchmark carbon contract came despite Brent crude oil triggering the entire energy complex higher. 

Although the price didn’t fall to new record low, there was still pressure on it.
The benchmark closed above the 6 euro level on Thursday. The carbon market received positive signals from broader markets (Asia, oil). In addition, Thursday’s white candle together with the small black candle from Wednesday formed a bullish engulfing pattern.

Friday was rather quiet with no major changes in the price of the benchmark EUA contract.

Although in the last three weeks we had to get used to the idea that technical signal can be wrong and an oversold price doesn’t necessarily mean that it turns higher any time soon, we might be more optimistic this week.

In the last three trading days the price didn’t hit any new local lows and last week’s chart contains a bullish engulfing.

In a positive scenario, the price might retest the Fibonacci level at 6.65 euro or even the local high after two white candles (that were quite exceptional in January) at 6.97 euro, before visiting 7.00 euro again.

The declining trend of January, however, is still unhurt which might make us cautious. Should the price turn back into this trend channel (due to the abundant auction supply or an unexpected shock in the oil market), the first support is the psychologically important 6.00 euro, followed by 5.85/5.79 euro, both being local lows from last week. The first strong support, however, is the 2016 low at 5.61 euro.

Source: Bloomberg L. P.