Monday, April 25, 2016

The EUA Dec16 got overbought before the compliance deadline

The EUA Dec16 digested quickly the steep fall in the price of Brent. The price opened at 5.45 euro on Monday, 3 cents below Friday’s settlement price. It fell to an intra-day low at 5.36 euro, but recovered step by step during the day to hit an intra-day high at 5.49 euro. The benchmark contract closed the day at 5.47 euro, leaving another doji candle, the third in three weeks. Higher power prices and a recovery in the dark spread might help the EUA dec16 price today. The first strong resistance is the April high at 5.67 euro. To the downside, the first support is the former resistance at 5.35 euro.

The EUA Dec16 continued its upward path on Tuesday. It reached 5.57 euro before some profit taking pushed the price to 5.46 euro. By the end of the day the price recovered and climbed above 5.50 again. The price hit an intra-day high at 5.58 euro and closed just 1 cent below that level. By the end of the day the price jumped almost 2%.

The EUA Dec16 sit on a roller-coaster on Wednesday. After opening 4 cents below Tuesday’s settlement price, it climbed slightly higher, but then it fell to an intra-day low at 5.45 euro. Buyers lifted the price in the afternoon to 5.56 euro and the contract finished the day just one cent below this level.

With a spectacular rally, the EUA Dec16 broke the resistance level at 5.67 euro on Thursday and closed above this critical level, opening the space for further appreciation on Friday. The last day of the week bought a new local high and the price broke the next resistance level at 5.85 euro and jumped to 6.03 euro.

Given the fact that this is the last week before the deadline for 2015 compliance expires, the price could rise further.

There is no strong resistance below 6.28 euro, an intra-day high from 29 January, unless the round number of 6.00 euro (and the upper Bollinger band) stops the price.

The RSI above 70, however, might warn of the possibility that some market participants could take the profit from their long position in the coming days. The German power entered overbought territory as well and a correction could have a negative effect on the price of carbon. In addition, the Polish EUA auction on Wednesday lifts the weekly supply above 17 million again.

In the case of a correction, the earlier resistance levels could work as supports, at 5.67, 5.50 and 5.35 euro.

Source: Bloomberg L.P.

Monday, April 18, 2016

EUA Dec16: More negative than positive factors identified for this week

Supported by higher power and oil prices, a strong auction result and compliance buying, the EUA Dec16 posted a rally of 2.6% and hit a new 2-month high at 5.62 euro last Monday. The price broke above the resistance at 5.49 euro (a local high from 22 February) which opened the space until the next resistance at 5.85 euro, a level tested three times between 2 and 4 February.

After the rally on Monday, the EUA Dec16 was able to climb even higher on Tuesday. The price opened at 5.60 euro, 2 cents above Monday’s settlement price. The benchmark contract jumped to a weekly high of 5.67 euro after a strong auction. In the afternoon we could see some profit taking as the upper Bollinger band limited further gains. By the end of the day the EUA Dec16 closed at 5.59 euro, 1 cent above Monday’s settlement. Tuesday’s candle looks like a doji again, indicating hesitation of the market about what direction to take.

Despite opening 2 cents above Tuesday’s settlement price, the EUA Dec16 lost 5 cents (-0.9% d/d) on Wednesday. Tuesday’s doji candle indicated already that there is a chance that the rally could stop. 
After the negative comments of the participants of the Doha conference on Sunday, Brent was not be able to support the carbon and the weak euro pushed the dark spread lower.

After two days the EUA Dec16 resumed its increasing path on Thursday. In the first hours of trading the price tested the downside and fell to 5.42 euro. The afternoon bought buyers back and they lifted the price to 5.62 euro. The closing price was just 1 cent below the intra-day low.

The weak dark spread and the falling oil price weighed on the carbon price Friday morning. It slipped to an intra-day low at 5.44 euro, but recovered in the afternoon.

If we take into consideration the strong correlation observed between the price of carbon and that of Brent in the first months of 2016, today's weak opening of the EUA market should be no surprise as the meeting of the biggest oil exporting countries 17 April (yesterday) failed to agree on keeping production at current levels. The price of Brent was down by more than 4% before the carbon market opened today.The German front year power lost 1.5% in today's opening and pushed the dark spread deeply below 3 euro.

After this "shock" from Sunday, the abundant auction supply might also weigh on the price this week with 17 million EUAs to be offered in five auctions.

In addition, the market is waiting for the first draft report of the European Parliament's industry committee about the post-2020 reform proposals of the European Commission. Although the ITRE is not the lead committee of the reforms, it will be interesting to see how much ambition they show. We have seen in the past that this committee tried to protect industrial sectors from higher carbon prices.

The question of the week is if the small compliance buyers are able to counterbalance all these negative factors.

From the technical analysis’ point of view the price was not able to hit any new local high since 12 April, but it is consolidating after a short rally. The first resistance levels are last week’s high at 5.67 euro and the upper Bollinger band at 5.78 euro.

To the downside the former resistance at 5.35 euro and the moving averages could work as supports (20DMA at 5.21 euro, 30DMA at 5.13 euro, 50DMA at 5.08 euro).

 Source: Bloomberg L.P.

Monday, April 11, 2016

EUA Dec16: Testing the upper edge of the 2-month trading range

The EUA Dec16 contract resumed its upward move last Monday, closing the session at 5.33 euro, some 0.15 euro higher compared to the previous close. The contract closed above the 50DMA for the first time since 4 December 2015, indicating that the contract regains some of its strength.

The benchmark carbon contract opened at 5.30 euro on Tuesday, 3 cents below Monday’s settlement price. It managed to touch Monday’s high at 5.33 during the day, but no new local high could be reached with German power falling steeply. The price slipped briefly to 5.18 euro, but recovered later on and was not able to climb into positive territory by the end of the day. It closed at 5.24 euro, 1.7% below Monday’s settlement price.

On Wednesday, the price opened 2 cents above Tuesday’s settlement price, at 5.26 euro, lifting the 20DMA above the 30DMA and providing a bullish signal. The price consolidated above the 50DMA and broke the resistance at 5.35 euro in the morning.

Thursday morning the EUA Dec16 contract reached 5.37 euro - the highest price since 23 February- before exploring the negative territory for the remainder of the day to close the session at 5.28 euro, some 0.03 euro lower than the previous settlement.

Although we saw a sleepy trade during the whole day, the price rallied to 5.46 euro in the last hour of trading on Friday. It was helped by the price of Brent and by the euro, both hitting daily highs in the afternoon.

Some small installations still have to purchase allowances for 2015 compliance which might support the EUA price next week further. 

The auction supply of allowances will be lower by more than 3 million allowances (no UK auction on Wednesday) which is also working in favour of the price appreciation. 

After the price rallied close to the local high from 22 February at 5.49 euro, the next resistance is above 6.00 euro. At the downside, the 5.00 euro level is the most critical.

Source: Bloomberg L.P.

Monday, April 4, 2016

EUA Dec16 broke above declining trend line

We have a short, but very intensive week behind us. Traders turning back from Easter holidays were still uncertain on the first two days, but they started closing short positions and probably opening longs from Wednesday on.

The EUA Dec16 started the week with a 6 cents gap down from the settlement price of 24 March. It slipped down to 4.75 euro in the morning. It ticked higher in the afternoon and jumped to 4.84 euro, but was not able to maintain its gains and turned lower in the afternoon and closed at 4.79 euro, 1.4% below last Thursday’s settlement price. By the end of the day the price formed a doji candle indicating hesitation of the market.

Despite the positive mood around the world, the EUA Dec16 opened 2 cents below Tuesday’s settlement price, at 4.77 euro on Wednesday. It quickly slipped to 4.75 euro, but reversed direction in the first hour of trading already. By jumped higher and higher, it reached 5.00 euro and broke above the 20DMA, but has been stopped by the 30DMA and closed at 4.97 euro.

After touching 5 euro on Wednesday before the market closed, the EUA Dec16 continued its rally on Thursday and jumped to 5.24 euro. The price hasn’t been at this level since 8 March. The price broke many resistance levels: the 20 and 30DMAs and the local high at 5.04 euro (hit 17 and 18 March). At these resistance levels, there might have been stop-loss orders (of short positions). Once the price level of these orders has been reached, the transactions have been executed.

The rally continued on Friday when the benchmark carbon contract reached 5.35 euro. The lower than expected 2015 emissions pushed the price to an intraday low at 4.91 euro, but the EUA Dec16 recovered and managed to close at 5.22 euro.

The fact that the price broke above the declining trend line, and closed above the 20 and 30DMAs and above 5 euro are positive signals for the coming week. The last two weekly candles form a bullish engulfing, also suggesting further gains. 

The price might consolidate above 5 euro, but the potential gains might be capped by the abundant auction supply (more than 17 million EUAs will be offered next week) and the Brent price that slipped below 40 USD per barrel again. 

The resistance levels are at 5.35 euro (intraday high from 1 April), followed by 5.49 euro, the high reached 22 February.

Former resistance levels could work as supports from now on (the 30DMA at 4.98 and the 20DMA at 4.97 euro).

Source: Bloomberg L.P.