Monday, July 25, 2016

EUA Dec16: Positive technical indicators proved false

Despite the positive signals from the technical analysis the week before, the EUA Dec16 lost 7.30% last week.
After a strong start the EUA Dec16 switched to correction on Monday. The price opened at 4.98 euro, 5 cents above previous Friday’s settlement price. In the first minutes of trading the price hit an intra-day high at 5.08 euro (which was the weekly high), a level not seen since 27 June. Already in the first hour of trading, however, the correction started and the price fell step by step to an intraday low at 4.83 euro, just one cent below the 20DMA.
The EUA Dec16 was not able to remain above the 20DMA and above the increasing trend line on Tuesday. The benchmark carbon contract opened 1 cent above Monday’s settlement, increased to 4.90 euro, but then fell continuously thanks to the worsening German dark spread. The only positive factor was that the decline was not confirmed by a significant volume as just 9.2 million allowances traded in the EUA Dec16 versus the July average of 14.4 million.
The benchmark carbon contract hit an intraday low at 4.58 euro on Wednesday, the lowest level since 13 July. The price recovered slightly in the afternoon thanks to oil inventory data and closed 2 cents (+0.04%) above Tuesday’s settlement price. Wednesday’s candle was a doji, indicating indecision in the market.
The price flirted with the 20DMA in Thursday’s trading. After opening 3 cents above Wednesday’s settlement the price fell to 4.67 euro. The price then reached an intraday high at 4.75 euro. The daily range of 10 cents was the lowest since March 2016. The traded volume in the EUA Dec16 of 7.2 million allowances was also lower than the July average.
Friday’s price performance was very similar to that on Thursday. Just the price slipped further down hitting a new weekly low at 4.54 euro. The price could not recover by the end of the day and closed just 3 cents above the daily low.
The weekly chart shows that the price was not able to break out from the 4.50-5.00 euro range. The last 5 candles draw a declining path in the chart of the EUA Dec16.
Should the perspective of the reduced auction volume in August help the price in climbing higher, the price could retest the upper edge of the range.
Further weak performance of the dark spread, economic risks due to Brexit and a strong US dollar could push the price out of the above mentioned comfort zone. In this case the price could retest the local lows at 4.36 and 4.28 euro.

Monday, July 18, 2016

EUA Dec16: Price could retest the Brexit gap this week

Despite a strong opening (4 cents above the settlement price of last Friday) the EUA Dec16 lost steam and fell to an intraday low at 4.41 euro on Monday. This is 3 cents below last week’s minimum. After an auction that cleared in line with the secondary market price the benchmark contract climbed higher, but the German dark spread falling below 2 euro in the afternoon pushed the price fell back towards its daily low.

After five black candles (and an RSI at 30) there came a white one on Tuesday. The EUA Dec16 opened 3 cents below Monday’s settlement and hit a new 7 day low at 4.36 euro. A correction in the Brent (Iraqi exports declined due to a pipe leak) and in the front year German power helped the carbon to climb higher. The price gained more than 4% and finished close to its intraday high of 4.67 euro. The last two candles formed a bullish engulfing which is generally considered as a positive sign.

The bullish engulfing “delivered its promises” and the EUA Dec16 gained more than 3% on Wednesday. After opening 3 cents above Tuesday’s settlement price, the benchmark carbon contract fell shortly to 4.54 euro. A strong auction result, however, gave wings to the price and it hit an intra-day high at 4.86 euro in the afternoon. From this level it only retreated slightly to close at 4.79 euro, 3.5% above Tuesday’s settlement. Wednesday’s rally added another positive signal to the bullish engulfing from Monday and Tuesday: the MACD crossed the signal curve.

The EUA Dec16 continued its rally Thursday morning and hit a 7-day high at 4.95 euro. This level is above the declining trend line that started after the Brexit referendum. The 20DMA, however, stopped the price and pushed it back lower. The price closed 1 cent below Wednesday’s settlement.

After Thursday’s hesitation the price got under renewed pressure Friday morning from a weak energy complex. The benchmark contract fell to an intraday low at 4.63 euro, but a strong auction managed to pull the price higher again. In the last hour of trading the price received additional boost from the extension of the shut down of the biggest UK gas storage which lifted all prices in the energy complex. The price gained 20 cents (+4.2% d/d) and closed at its weekly high.

As mentioned, there are couple of bullish signs in the chart right now: The MACD cross, the bullish engulfing and the close above the declining trend line. 
Should the price be able to keep its strength this week, it might try to refill the gap left after the Brexit referendum between 5.24 and 5.65 euro. This task could be made harder as the 30DMA is also at the 5.24 euro level.
In a negative scenario, the first strong support is the 2016 low at 4.28 euro.

Source: Bloomberg L.P.