Tuesday, March 29, 2016

EUA Dec16: Consolidation before the publication of the 2015 verified emissions

As envisioned the week before, the upper edge of the triangle limited gains in the EUA Dec16 and the price fell by more than 3% last week.

The benchmark carbon contract opened in a negative mood on Monday. The price opened at the settlement price of the previous Friday exactly, but slipped continuously after the opening. It hit an intraday low at 4.86 euro, but recovered slightly in the afternoon when the German dark spread improved in parallel with higher power prices. The recovery, however, was still not enough to lift the price to 5 euro.

The news about the terror attacks in Brussels Tuesday morning pushed all markets lower. The EUA Dec16 fell to an intraday low at 4.75 euro, below the support level at 4.77 euro. The contract managed to climb back later and closed at 4.83 euro (1% below Monday’s settlement price) helped by an improving dark spread due to lower coal prices.

The EUA Dec16 opened at 4.81 euro on Wednesday, 2 cents below Tuesday’s settlement price. It managed to climb to 4.83 euro in the early hours of trading, but slipped quickly to an intraday (March) low at 4.70 euro. The last hours of trading, however, brought buyers to the market and they pulled the price back. The benchmark carbon contract closed at 4.81 euro, leaving a dragonfly doji candle which generally indicates hesitation of the market about which direction to take. The fact that the price recovered from its intraday lows was a promising signal.

The benchmark carbon contract, however, traded in the red during almost the whole day on Thursday, but posted a surprising afternoon rally and closed at its intraday high at 4.86 euro.

The week after the Easter holiday will see more or less the same auction supply with Poland stepping in instead of the UK on Wednesday. 

Additional supply might land in the market if the updated status table on 2016 free allocation shows that Spain, Italy and/or Finland distributed free allowances.

Price volatility might increase on Friday, when the European Commission publishes 2015 verified emissions data. The market consensus expects –1% - +1% change from 2014 emissions. Anything out of this range might trigger additional trades in the carbon market. Until the publication of the verified emissions data the price might consolidate below 5 euro.

The first support level is last week's low at 4.70 euro followed by the 2016 low at 4.62 euro.

To the upside the first resistance levels are the 20 and 30DMAs at 4.94 and 4.97 euro, respectively and the declining trend line that capped gains last week.

Source: Bloomberg L.P.

Monday, March 21, 2016

EUA Dec16: Consolidation near 5 euro

Carbon took direction from declining crude oil prices last Monday after it seemed unlikely Iran would be willing to cut production until output hits 4 million barrels per day, approximately 25% up from current levels. The EUA Dec16 contract closed down 0.12 euro from the previous 

The EUA Dec16 opened at 4.87 euro on Tuesday, 1 cent below Monday’s settlement price. It only managed to climb higher 3 cents during the day, fell to an 8-day low at 4.77 euro and finished the day at its opening level. By the end of the day the price left a doji candle suggesting that traders are hesitating about which direction the price might take. 

The benchmark carbon contract climbed above 5 euro on Wednesday, but the traded volume remained low as the market was waiting for the US Federal Reserve's communication about its rate hiking path. The price opened at 4.87 euro (Tuesday’s close and the intraday low) and climbed step by step until reaching 5.01 euro in the afternoon. It was, however, not able to keep these gains and closed below the critical 5 euro level (again).

After a strong opening the weak auction result pushed the benchmark carbon contract back below 5.00 euro on Thursday. Thanks to a rally in the last 90 minutes of trading however the price climbed to an intraday high at 5.04 euro. The price then closed at 5.01 euro. The afternoon rally and the settlement price above 5 euro increased optimism about the price performance on Friday.

Despite some hesitation in the morning when the price fell to 4.92 euro, the price got impetus from a strong auction result and retested the Thursday high at 5.04 euro. The close was less rosy with a settlement below 5 euro again.

The price is moving in a declining triangle. The 2016 low (touched 11 and 17 February) at 4.62 euro represents the lower (horizontal edge). The upper edge is declining as the highs reached since 22 February are lower and lower every week. (See chart on page 2.) This declining line might limit gains this week as there is not much that could help the price in breaking this resistance.

The 20 and the 30DMAs met on Friday at 5.00. If the former is able to climb above the latter, it would be a positive sign for the next days.

Until the publication of the verified emissions data for 2015, however, there is no event expected to influence the price. The EUA Dec16 might therefore consolidate around 5 euro this week again.

Source: Bloomberg L.P.

Monday, March 7, 2016

EUA Dec16: Consolidation near 5 euro

Last Monday, the EUA Dec16 shocked market participants with opening at 4.92 euro, 8 cents below Friday’s settlement price. It fell to an intraday low at 4.85 euro after the EUA auction cleared at a decent discount to the secondary market price and reached the lowest cover ratio since 25 June. The price recovered later in the afternoon and closed 1 cent above Friday’s settlement price.

Due to weak manufacturing data from China in the morning, the benchmark contract opened 2 cents below Monday’s settlement price on Tuesday and slipped to an intraday low at 4.92 euro. The strong auction result, however, reversed the direction of the price and pulled it to 5.12 euro. The 20DMA stopped the appreciation and the price turned lower again in the afternoon. Tuesday’s candle is a doji, indicating uncertainty in the market about which direction to take.

Despite starting the day in a positive mood, the price of EUA Dec16 plummeted to an intraday low at 4.83 euro on Wednesday. Some late afternoon buyers, however, pulled the price back close to 5 euro after the better than expected employment data from the US. The price finished the day at 4.97 euro, a 3 cent loss from Tuesday’s settlement price. Wednesday was the fourth day when the price closed near 5 euro and after Tuesday the price formed a doji candle again. All these are signals about the market hesitating about which direction to take.

The EUA Dec16 opened in a negative tone on Thursday as market participants expected an update about the 2016 free allocation of allowances. An unexpectedly strong auction result pulled the price higher, but after the disappointing comments of the post-2020 reform rapporteur, sellers overtook the floor in the afternoon and pushed the price to 4.77 euro. The recovery before the market closed lifted the price back to 4.90 euro. The contract closed 1.4% below Wednesday’s settlement price.

The same level at 4.77 euro stopped the depreciation on Friday as well, although the price was quite weak during the whole day. Friday’s candle is another doji (after Tuesday’s) showing uncertainty of the market about which direction to take. The first support is at 4.77 euro (the intraday low from last Thursday and Friday), followed by a local low at 4.67 and the 2016 low at 4.62 euro. To the upside, after the 20DMA the next resistance might be a local high at 5.12 euro, and another at 5.24 euro.

Indecision and sideways movement characterize the chart. the range of the last three weeks between 4.60 and 5.50 euro is still unhurt. 

Source: Bloomberg L.P.