Monday, June 19, 2017

EUA Dec17: Auction supply jumps after three weeks of price declines

Despite the reduced auction supply, last week was the third in a row when the benchmark carbon contract slipped lower.
The EUA Dec17 started the week flat to previous Friday’s settlement price. After a strong auction result, the price retested Friday’s maximum at 5.10 euro, but turned sharply lower in the afternoon. For some minutes it seemed that the 20DMA at 4.95 euro was able to keep the price from falling further, but in the last hour of trading the price plummeted to a daily minimum at 4.91 euro and was not able to recover by the time the market closed. The contract finished the day 2.4% lower, at 4.92 euro, just 1 cent above the daily minimum. The traded volume of 10.6 million was slightly higher than the June average of 9.5 million. The sell-off pushed the price to the lower edge of the increasing trend channel that has been established in the second half of May.
The EUA Dec17 rose for the first time in three days on Tuesday as auction supply dried and the energy mix was strong. Although the price fell below the 20DMA during the day, it managed to recover by the end of trading. The price finished the day at 5.01 euro, a gain of 1.8%.
As all financial markets were waiting for the next rate hike by the US Federal Reserve, the carbon price moved in a narrow range of 8 cents most of Wednesday. After the publication of the US crude oil inventory data, however, the price of Brent turned 3% lower and the carbon price followed suit. The EUA Dec17 hit a daily minimum at 4.90 euro, and was not able to climb back above the 5.00 euro level by the end of the day. The close below the 5 euro level and the 20DMA, and the bearish engulfing from the last two days were warning signals that the carbon price might fall further.
Most of the market participants were on holiday on Thursday, which had an impact on the traded range and volume of EUAs. The price moved in a narrow range and not even 7 million allowances traded in the benchmark contract. The price closed with a marginal gain of 2 cents as the positive effect of the lack of auctions was mainly cancelled by the weak energy mix.
The EUA Dec17 opened with a 2 cents gap down on Friday and still tried to retest the 5 euro level (also the 20DMA) in the morning. Fears about the increasing auction supply, however, pushed the price down continuously in the afternoon. The benchmark contract finished the week at 4.88 euro, a daily and weekly minimum and a level not seen since 7 June. 
The increasing auction supply started to weigh on the price last week already and the negative effect might continue this week as well. 
The deteriorating German clean dark spread is another factor having a negative impact on carbon prices.
The factors mentioned above pushed the price of the EUA Dec17 below the 5.00 euro level which is currently also the 20DMA and the 30DMA at 4.85 euro is quite easy to reach. The next support is the lower Bollinger band at 4.77 euro, followed by a Fibonacci level at 4.70 euro and a local low from March at 4.58 euro.
On the other hand, the RSI is in neutral territory and the MACD still in the positive territory. Should the price be able to consolidate or recover, the first resistance is the 5.00 euro level, followed by the 200DMA at 5.12 euro.


 Source: Bloomberg, ICE

Monday, June 12, 2017

EUA Dec17: Consolidation near the 5 euro level expected

The benchmark contract declined by an additional 2.3% last week.
On Monday when there were no EUA auctions, the EUA Dec17 hit a new 3-month high at 5.8 euro. The traded volume of 5.3 million allowances, however was well below the daily average for May because of a public holiday in many European countries.
The EUA Dec17 opened flat on Tuesday and remained relatively stable in the morning. The weak energy mix, however, pushed the benchmark carbon contract lower in the afternoon. The decline accelerated when the price fell below the 200DMA first, and then below the 5.00 euro level. The price hit a daily minimum at 4.93 euro, and was not able to recover by the end of the day. The contract settled at 4.97 euro, a loss of 20 cents (-3.9% d/d).
Although the benchmark carbon contract opened flat on Wednesday, it closed the day with a loss of 1.8%. In the morning the price still tried to climb back above 5 euro and reached a daily maximum at 5.04 euro, but the unexpected increase in the US crude oil inventories that pushed down oil and gas prices had a negative effect on the carbon price as well. It fell to a daily minimum of 4.87 euro, and was not able to recover by the end of the day. The closing price at 4.88 euro was the lowest since 23 May.
Starting from the 20DMA, the EUA Dec17 opened with a 2 cents gap up on Thursday and the gap has not been filled during the day which means that it will serve as a support. Thanks to the strong auction and the rally in German power prices the price broke above the 5.00 euro level and did not stop until 5.18 euro. The contract was not able to keep all its gains and closed at 5.05 euro, 3.5% above Wednesday’s settlement price.
The CO2 price moved in a narrow range of 10 cents on Friday. After opening at 5.05 euro, the price slipped 5 cents down, then climbed back and increased 5 cents. By the end of the day it returned to its opening level, producing a doji candle, a sign of uncertainty.
Most of the technical indicators suggest a consolidation to be expected in the next days. The relative strength index is at 53, and the allowances trade near the mid-Bollinger band. The lack of auction son Thursday (bank holiday in Germany) and on Friday (bridging) might support the price this week. 
The MACD, however, slipped below the signal curve on Friday, warning about the weakness of the price.
All in all, we expect the price of allowances to consolidate near the 5 euro level this week. 
Supports are seen at 4.96 euro (20DMA), at 4.95 euro (a Fibonacci level) and at 4.85 euro (lical low from February).
The first resistance is the 200DMA at 5.10 euro, followed by a Fibonacci level at 5.15 euro and the June high at 5.28 euro.


Source: Bloomberg, ICE

Sunday, June 4, 2017

EUA Dec17: Consolidation above the 5 euro level

With many traders on holidays due to the spring bank holiday, the EUA Dec17 remained stable on the first trading day of the week. The contract traded in a range of 9 cents. Although the price fell to a daily minimum at 5.13 euro, it remained above the 200DMA and was also able to recover to close at 5.17 euro (-0.4% d/d). Despite the loss the 20DMA climbed above the 30DMA on Monday, a positive signal.
The delay of the political negotiations and the restart of the daily auctions pushed down the price of the EUA Dec17 in the first half of the day on Tuesday to hit a daily minimum at 5.09 euro. The recovery in the afternoon was short lived and the contract closed at 5.14 euro, a loss of 3 cents or 0.6% in a daily comparison.
The benchmark carbon contract was relatively stable in Wednesday’s opening, but started to decline slowly after the auction. The movement accelerated in the last hour of trading, when the price fell below the 200DMA and the 5.00 euro level. The price was not able to recover and finished the day at 4.98 euro, a loss of 16 cents or 3.1%. 
The EUA Dec17 opened flat on Thursday and increased continuously during the day. The gains accelerated after the strong auction and the price hit a daily maximum at 5.14 euro. By the end of the day the price retreated slightly to close at 5.08 euro, a gain of 10 cents or 2.0%. The fact that the price managed to climb back above 5.00 euro was a positive fact.
Disappointment about the decision of the US President pushed the price of the EUA Dec17 below 5.00 euro  Friday morning again, but the commitment of the climate commissioner and the German Chancellor to the accord brought back investors’ confidence in the EU ETS, the Union’s main tool to achieve its emission reduction goals. The benchmark contract hit a daily maximum at 5.20 euro (the gains were halted by the local maximum at 5.22 euro) and closed the day 1.6% higher.
In the last 6-7 trading days the 5.00 euro level proved a good support. Should the slightly higher auction supply or a disappointing UK election result push the price lower, the next support is a Fibonacci level at 4.70 euro. To the upside, the 5.22 euro level is the first resistance to break, followed by a Fibonacci level at 5.30 euro and a local high from 5.47 euro.




Source: Thomson Reuters, ICE

Monday, May 29, 2017

EUA Dec17: Lack of auctions and higher power prices lifted the price above 5 euro

With only three auctions and the German front year power price climbing back above 30 EUR / MWh, the benchmark carbon contract was able to climb above 5 euro again.
The EUA Dec17 opened with a 6 cents gap up on the first trading day of the week. The strong auction lifted the price to a new 1-month high at 5.00 euro in the afternoon. After retreating from the daily maximum, the price closed at 4.91 euro, forming a doji candle that signals indecision of the market which direction to take.
After Monday’s doji candle, the EUA Dec17 opened with a 4 cents gap down on Tuesday, but it was able to hit a daily maximum at 4.96 euro during the day. An attempt to break above the 5.00 euro level, however, failed. In the last two hours of trading bears invaded the trading floor and pushed the price sharply lower. The benchmark contract fell to a daily minimum at 4.72 euro and was not able to recover by the time the market closed. It settled at 4.75 euro, a loss of 3.3% in a daily comparison. The traded volume of 18.3 million in the Dec17 contract was the highest since the last trading day of April (the compliance deadline). Despite the negative day, the MACD has been lifted above the zero line which is a bullish signal.
The benchmark carbon contract opened flat on Wednesday, and slipped just one cent down, before it started rallying towards 5 euro again. The price hit an intra-day maximum at 4.94 euro, and remained above 4.90 euro until the market closed (+3.2%).
Supported by the lack of auctions, EU carbon allowances rose for the 7th time in 8 days on Thursday, trading near the 1-month high reached earlier last week. After some initial hesitation, the price climbed continuously higher to hit the 5.00 euro level for the second time after Monday. Gains were kept until the last minutes of trade and the benchmark carbon contract closed at 4.98 euro, a gain of 1.4% in a daily comparison. The volume, however, was extremely low at 5.6 million compared to the 11-18 million in the three first trading days of the week due to a public holiday in many European countries.
After a strong opening the price did not hesitate long and it climbed to reach a new monthly high at 5.19 euro (last seen 7 April) on Friday. The price broke above the 200DMA at 5.08 euro as well. The contract settled at the daily maximum, with a gain of 19 cents or 4.2% from Thursday’s settlement price. 
In the last two weeks, when the price left the declining trend channel and the MACD climbed above the zero line, the technical picture got rosier. 
The two warning signals are, however, that the price trades above the upper Bollinger band and the relative strength index is approaching the overbought territory. 
In addition, auction supply increases by 29% in a weekly comparison and the dark spread also turned lower last week.
We therefore have a balanced view on the price and expect the EUA Dec17 to move between 4.70 and 5.45 euro this week.



Source: Bloomberg, ICE

Monday, May 22, 2017

EUA Dec17: Breaking out from the declining trend channel

With the exception of Monday, the benchmark carbon contract managed to increased every day last week. The rally lifted the price above the short term declining trend channel.
The benchmark carbon contract opened 2 cents above the previous Friday’s settlement price on Monday, but was only able to rise an additional 2 cents to a daily maximum at 4.50 euro. The price then spent most of the day around these levels before turning sharply lower in the last hour of trading. Sellers pushed the price down by 10 cents in the final 60 minutes to close at 4.39 euro, down 1.6% from Friday.
Supported by positive market mood in the morning, the EUA Dec17 opened 3 cents above Monday’s settlement price on Tuesday. Then it fell to 4.34 euro, but a strong auction helped the price breaking the resistance at 4.50 euro. After hitting a daily maximum at 4.57 euro, the price settled at 4.54 euro, a gain of 3.4% in a daily comparison. The price finished the day above the 20DMA and close to the higher edge of the short term declining trend channel.
On Wednesday, the EUA Dec17 opened with a 2 cents gap above Tuesday’s settlement price, but fell to a daily minimum at 4.49 euro in the morning hours. A healthy UK auction, higher power prices and the reversing oil price, however, helped the carbon price to turn higher as well. Buyers lifted the price above the Fibonacci level at 4.60 euro, but the 30DMA at 4.65 euro could not be broken. The benchmark carbon contract finished the day at 4.58 euro, a gain of 4 cents (0.9%). The price closed above April’s declining trend channel. In the last two trading days, when the price managed to increase, the traded volume rose above 10 million again which is a positive signal.
The benchmark carbon contract maintained its momentum and increased further on Thursday. The price opened with a gap up, which was closed in the morning hours already. Helped by higher oil and power prices, and the strong auction, the benchmark carbon contract increased step by step to reach a daily maximum at 4.82 euro, a level not seen since 20 April. Although the price retreated in the last minutes of trading, it closed with a gain of 3.9%. The price remained above the short term declining trend channel and it also closed above the 30DMA which is a positive sign.
Although the fast rally on the previous two days lifted the price above the upper Bollinger band which increased the likelihood of a correction (profit taking) on Friday, the EUA Dec17 continued rallying on Friday, hitting 4.92 euro and closing the day with a gain of 1.9%.
Last week’s rally improved the technical picture of the EUA Dec17 significantly, as the price broke from the short-term declining trend channel. The MACD approached the zero line, while the relative strength index (at 59) still leaves room for further appreciation.
The auctioned volume declines by 38% this week as there will be only three auctions due to public holidays in Germany. 
The lower auction supply coupled with the supportive energy mix (oil rallied on expectations the OPEC would extend and deepen the production reduction agreement this week, the German dark spread jumping above 2 EUR/MWh) will support the price of the EUA Dec17 this week. Should the price increase further, the first resistance is the 5.00 euro level, followed by the 200DMA at 5.08 euro.
On the other hand, the price jumped above the upper Bollinger band (at 4.85 euro) last week which increases the likelihood of a correction this week. In the case of a decline, the first support would be the 30DMA at 4.64 euro.
Volatility and traded volume might be impacted by the fact that the Innovate4Climate conference starts on Monday, 22 May. 

All in all, we expect the price to move between 4.50 and 5.20 euro this week.


Source: Bloomberg, ICE



Monday, May 15, 2017

EUA Dec17: Slipping lower slowly

Despite opening 2 cents above last Friday’s settlement price, the EUA Dec17 turned lower already Monday morning. The weak auction result and the low prices in the wider energy mix depressed the price further in the afternoon. By the end of the day the price fell to a daily minimum at 4.41 euro, and was not able to recover. The settlement price was just one cent higher and below last Friday’s minimum and the two last candles formed a bearish engulfing, a negative signal.
The benchmark carbon contract had one of its most boring days on Tuesday. At least, until the last hour of trading. The price moved in a narrow range of 5 cents until the final hour, when buyers hurried to lift the price to 4.58 euro and expand the daily range to 19 cents. The price settled 10 cents (+2.3%) above Monday’s closing price. The move surprised markets as the two previous candles formed a bearish engulfing. The traded volume, however, remained at the levels seen on Monday (below 10 million allowances).
The benchmark carbon contract seemed to continue the positive momentum Wednesday morning, but the steam has been lost during the day. The price opened 1 cent above Tuesday’s settlement price and hit a daily maximum at 4.57 euro, but could not climb any further. In the last hour of the trading session the price turned sharply lower and hit a daily minimum at 4.42 euro. The EUA Dec17 finished the day with a loss of 7 cents (-1.5% d/d).
Although the German dark spread approached its highest level in 2017, the EUA Dec17 was testing with its yearly minimum on Thursday. Despite opening with a gap up in the morning, the benchmark carbon price turned lower after the weak auction result. It fell to a daily minimum of 4.31 euro, just 1 cent above the 2017 minimum. The price finished the day at 4.35 euro, a loss of 2.2% in a daily comparison.
Thursday’s losses have been reversed on Friday. After opening at Thursday’s settlement price, the benchmark carbon contract turned lower pushed down by a weak auction result. It even hit a new 2017 low at 4.29 euro. In the afternoon, however, bulls took over the trading floor and lifted the price to a daily maximum at 4.47 euro. Gains were kept until the last minute of trading and the price closed 11 cents higher.
The technical indicators provide a neutral signal. The relative strength index is in the neutral territory, the MACD moves sideways below the zero line and the signal curve. The price slips lower every week, Although the change is not dramatic, the trend is downwards and the possibility of the price slipping to a new 2017 minimum cannot be ruled out.
In the five auctions this week supply will decline slightly by 2.7%, but it still remains a question who shows interest for the allowances. The cover ratio of Friday's German auction (1.43) was the lowest since 20 September 2016.
The discrepancy between the German dark spread and the CO2 price also raises questions about the upside potential of carbon. While the first one is approaching 2017 highs, the latter is hitting new 2017 minimums always every day.


 Source: Bloomberg, ICE

Monday, May 8, 2017

EUA Dec17: Macron and the improved dark spread to counterbalance the abundant supply

May's short first week started in a negative tone as the price hit a new 2017 minimum on Tuesday, on Wednesday and on Thursday as well, before turning higher again on the last trading day of the week.
The EUA Dec17 traded in a narrow range of 7 cents for most of Tuesday, but bears pushed the price to a new 2017 low in the afternoon. The price fell to 4.37 euro, 8 cents below the previous minimum. The traded volume got only close to 10 million when stop-loss orders were triggered at 4.45 euro.
Lack of demand pushed the price of the benchmark contract to a new 2017 low at 4.34 euro on Wednesday.
Despite hitting a new 2017 low at 4.30 euro in the morning hours, the EUA Dec17 climbed back above 4.50 euro late in the afternoon on Thursday. The strength was even more surprising as the German front year power traded near its intra-day minimum and the Brent plummeted by 5%. Although the contract was not able to keep all its gains, it closed above the 4.50 euro level representing an increase of 2.7% in a daily comparison.
The bulls took over the trading floor on Friday again. After opening at Thursday’s settlement price of 4.52 euro, the price hesitated a little in the morning hours and fell to an intra-day minimum at 4.45 euro. The strong German auction, however reversed the price direction and the contract reached quickly 4.70 euro. The contract was not able to maintain all its gains until the end of the session, but it still closed 6 cents above Thursday's settlement price.
Thanks to the rally since Thursday afternoon, the price approached the moving averages near 4.70 euro. Should the price be able to break these resistances, it would approach the upper end of the declining trend channel that has been established since the second week of April. 
The price could receive support this week from the EUphoria after the French presidential elections, where centrist and pro-EU Emmanuel Macron received more than 60% of the votes on Sunday. From the fundamental side, the improving dark spread could also attract some utilities to the carbon market this week.
On the other hand, the abundant supply might keep a cap on potential gains, as in five auctions more than 22 million allowances will be offered, an increase of 28% in a weekly comparison.
In a negative scenario, the new 2017 low at 4.30 euro will be the first strong support.
The technical indicators do not point into any direction. the relative strength index is comfortable in the neutral territory (at 45). The MACD is below the zero line and also below the signal curve. 



Source: Bloomberg, ICE

Tuesday, May 2, 2017

EUA Dec17: New 2017 low hit in the last week of compliance

Although the price fell to a daily minimum of 4.57 euro Monday morning, the positive market mood after the French elections lifted the benchmark carbon contract above the 2017 low (4.56 euro) hit the Friday before. A good auction helped the price reaching 4.74 euro during the day, the level from which the price started declining on Friday. The intra-day gains, however, could not be kept amid falling power prices and the price closed the day with a marginal gain of 1.5%, at 4.64 euro.
Low power prices and the high supply of allowances pushed the price of the EUA Dec17 to a new four month low on Tuesday. The price was stable in the first half of the day, but bears invaded the trading floor in the afternoon and pushed the price down to 4.45 euro. Almost 19 million allowances traded in the benchmark contract, meaning that the negative sentiment was confirmed by a high volume. (The average daily volume in April was 11.6 million.) By the end of the day the benchmark carbon contract could only return to 4.50 euro. The sell-off pushed the RSI close to oversold territory, the MACD below the signal curve and the price below the lower Bollinger band.
The EUA Dec17 consolidated above the 2017 minimum on Wednesday. The price opened at 4.54 euro, 4 cents above Tuesday’s settlement price, but the gap was closed quickly when the price fell to an intraday minimum at 4.47 euro. The afternoon brought buyers to the market resulting in an intra-day maximum of 4.65 euro. This was the level, the sharp decline started from on Tuesday. The price then closed 11 cents higher, a gain of 2.4%. The traded volume of 12.8 million allowances was in line with the April average, but remained below Tuesday’s 19 million.
Despite opening 2 cents below Wednesday’s settlement price, the benchmark carbon consolidated between 4.56 and 4.65 euro during most of Thursday’s session. In the last minutes of trading, however, sellers pushed the price down again. The closing price of 4.55 euro represented a loss of 6 cents or 1.3% from Wednesday. The traded volume fell further and did not reach even the 10 million.
The traded range narrowed further on Friday, when the price moved between 4.53 and 4.60 euro. The price stabilized in the middle of the range, to close unchanged in a weekly comparison.
Positive and negative factors impacting the carbon market might be in balance this week.
On the negative side, after the compliance deadline it might turn more difficult for the auctioned allowances to be absorbed. The auctions of last week had already a weaker result than those in the first half of April.
Oil and gas prices were falling hand in hand in the last week of April. Market got sceptical if an extension of the agreement between OPEC and non-OPEC countries can deliver higher oil prices if the countries not participating in the agreement (for example the US and Libya) increase their production levels. Gas prices followed oil lower, while demand was also dented by forecasts about milder temperatures.
Investors might also chose staying at the sidelines of the market before the second (and final) round of the French presidential elections, as the support for Mr. Macron declined slightly below 60% in the second half of last week.
On the other hand, the price trades close to the lower edge of the March-April range, next to the lower Bollinger band. This might result in a consolidation or correction of the price this week.
All in all, we remain neutral for this week and expect the price to trade between 4.00 and 5.00 euro.


Source: Bloomberg, ICE




Tuesday, April 18, 2017

EUA Dec17: Consolidation near the 5 euro level

In a short week before the Easter holidays, the EUA Dec17 gained 1.2%.

Thanks to a strong auction the price of the EUA Dec17 remained stable for most of Monday’s trading session. In the last 10 minutes of trading, however, the price turned sharply lower and finished the day one cent above its daily minimum, at 4.79 euro, with a loss of 10 cents from previous Friday’s settlement (-2.0% d/d).

Despite some intra-day volatility, the benchmark carbon contract remained within its comfort zone on Tuesday. After opening at Monday’s settlement, the price turned higher and reached 4.90 euro. The price then turned lower after noon. Reversing the pattern of the previous two days, bulls lifted the price in the last hour of trading to a new intra-day maximum at 4.92 euro. The closing price was just 5 cents below this level

The EUA Dec17 climbed higher step by step on Wednesday to hit an intra-day maximum at 5.04 euro in the afternoon. The benchmark carbon contract was not able to keep all its gains and finished below the 5.00 euro level. The closing price still represents a gain of 1.2% from Thursday’s settlement price. On the positive note, the price closed above the 20DMA.

In an Easter holiday mood, the benchmark carbon price moved in a narrow range of 11 cents on Thursday. The price opened at Wednesday’s settlement price and lost just one cent before climbing to an intra-day maximum at 5.03 euro. Gains however could not be kept by the end of trading and the price closed at 4.95 euro, a gain of 2 cents from Wednesday.

Technical indicators of the EUA Dec17 chart send a neutral signal. The relative strength index is in neutral territory (at 50). The MACD is approaching very slowly the zero line, but is still in the negative territory. The Bollinger bands narrowed, but the price closed at the mid band.

Although there is a slow increasing trend in the price since the last week of March, the price seems rather to consolidate between 4.60 and 5.30 euro. This range might keep the price this week as well.
 
 Source: Bloomberg, ICE

Monday, April 10, 2017

EUA Dec17: Technical indicators provide mixed signals

The EUA Dec17 had a positive start to the week on Monday. It opened 6 cents above the previous Friday’s settlement price, but retreated before the publication of the 2016 verified emissions data. As the data suggested at first sight that the emissions increased from 2015, the price jumped to a daily maximum of 4.91 euro. Later on, however, the market realized that there was a French installation that most probably reported erroneous data without which emissions declined by the expected extent. As a consequence, the price turned lower and consolidated around the 4.75 level in the afternoon, but bulls lifted the price higher in the last hour of trading again. As a consequence, the EUA Dec17 finished at 4.87 euro (+3.8%).
The EUA Dec17 traded in a 10 cents range during most of Tuesday, but the last hour of trading woke up bears, who pushed the price down to 4.66 euro. The price closed at the lower edge of the daily range, at 4.65 euro, a loss of 4.7%. This way all the gains from Monday afternoon have been cancelled and the price got close to the support level at 4.60 euro.
The EUA Dec17 opened with an 8 cents gap up from Tuesday’s settlement price, but filled in the gap quickly, in the first hour of trading already. Higher power and oil prices, and a strong UK auction lifted the price to a daily maximum at 4.93 euro. Profit taking started in the last hour of trading and pushed the price back to 4.82 euro.
A strong energy mix, compliance purchases and short covering lifted the benchmark carbon contract on Thursday. After opening at 4.82 euro in the morning, the price climbed continuously higher during the day. The break of the resistance level at 4.95 euro accelerated the price appreciation, as many traders closed their short positions. The price climbed above the 20DMA and hit a daily maximum of 5.14 euro, a level last seen 20 March. The rally was halted by the 200 and 30DMAs. By the end of the day the EUA Dec17 gave back some of its gains, but it still managed to close above 5 euro, and finish 5% above Wednesday’s settlement price. The rally lifted the MACD above the signal curve, which is a positive signal. In addition the price rose above the declining trend line of March.
In the first half of Friday, the EUA Dec17 hit a new local high at 5.19 euro, but shortly later profit taking started which accelerated towards the end of the day pushing down the market to 4.87 euro. The price finished at the lower edge of the intra-day range, at 4.89 euro and fell back below key levels like the 5 euro level and the 20DMA.
Despite the sell-off Friday afternoon, the price closed 4.3% higher in a weekly comparison.

The technical indicators provide mixed signals for this week. The relative strength index is in neutral territory (48). The MACD is below zero, but due to the rally last Wednesday and Thursday, it has been lifted above the signal curve which can be considered as a positive sign. 
On the other hand, the fact that the price was not able to remain above 5 euro and fell below the 20DMA last Friday put question marks to the strength of the price. In addition, the 30DMA fell below the 200DMA, also a negative signal.

Compliance demand and the lack of the German auction on Friday (Good Friday is a bank holiday) might provide stability to the CO2 price this week, but low electricity demand due to the holiday season can put a cap on potential gains. 

We therefore expect the price to consolidate in the range of 4.60 (March low and lower Bollinger band) and 5.30 (a Fibonacci level) euro this week.



Source: Bloomberg, ICE

Monday, April 3, 2017

EUA Dec17: 4.60 euro was key support before the publication of the verified emissions data

The benchmark carbon contract finished last week 1.7% lower as traders took profit before the publication of the 2016 verified emissions data and cancelled three days of gains. The relative strength index has been pushed below 40 and the MACD deeper into negative territory.
On the first trading day of the last week, the EUA Dec17 extended its losses and hit a new 2017 low at 4.58 euro. The price fell below the previous 2017 minimum at 4.62 euro during the day, but managed to climb back one cent above this level by the end of the day. The decline pushed the MACD deeper into the negative territory, and the RSI close to 30.
The benchmark carbon contract started on Tuesday at 4.62 euro and increased continuously during the day. It hit a daily maximum at 4.82 euro, but fell back in the afternoon to close at 4.74 euro (+11 cents of 2.4%).
The carbon market received positive signals Wednesday morning, but there were significant risk factors (Brexit, Polish auction) that made traders cautious in the morning. After the surprisingly strong Polish auction, however, the price rallied to the resistance level at 4.84 euro, but it was not able to maintain its gains until the market closed. As a consequence, the EUA Dec17 closed flat to Tuesday’s settlement.
The 5 cents gap from Thursday morning was quickly filled as the price fell from the 4.81 euro opening price to a daily minimum of 4.64 euro. A strong energy mix, a revised US GDP and short covering made the price rally in the afternoon to 4.98 euro, a level last seen a week ago. The price closed at 4.92 euro, a gain of 3.4%, but the 20DMA fell below the 200DMA which is a bearish signal.
The benchmark carbon contract was relatively stable almost the whole Friday long (trading between 4.91 and 4.95 euro), but bears invaded the trading floor in the last hour of trading to reduce their positions before the publication of the 2016 verified emissions data on Monday. The price fell steeply 4.86 euro to a daily minimum of 4.67 euro.
The direction the EUA Dec17 will take this week will be defined by the 2016 verified emissions data. If emissions declined more than expected by the market (a decline of 2-4% from 2015 levels), the price might fall below the support level at 4.60 euro. If emissions only fell by a smaller extent than the linear reduction factor of 1.74%, it means that the oversupply did not increase further. This might support the price and pull it towards 5 euro.



Source: Bloomberg, ICE

Monday, March 27, 2017

EUA Dec17: Bears lining up in view of several risk factors

Last Friday's sell off pushed the price of the EUA Dec17 to a new two-month low.
After seven consecutive sessions in neutral territory, the front year carbon contract broke through its comfort range and tested the downside last Monday. Prices fell below 5 euro for the first time in a month after bearish developments in other energy markets and a weak auction result. The EUA Dec17 contract closed the session at 4.99, 0.15 euro (-2.9%) lower than previous Friday’s close.
After opening at 5 euro (1 cent above Monday’s settlement price), the benchmark carbon contract fell to a daily minimum of 4.93 euro on Tuesday. Most of the day the price traded range bound between 4.93 and 4.97 euro, to finish at the lower edge of the range, at 4.94 euro.
The option strike price gravity and the strong auction helped the benchmark carbon contract to reverse from the February low at 4.85 euro on Wednesday. The price was lifted to a daily maximum of 5.02 euro, but it was not able to stay above this level. By the end of the day, the price returned below 5.00 euro and closed at 4.97 euro. This level still represented a gain of 3 cents of 0.6% compared to Tuesday’s settlement price. The traded volume was also exceptionally high (due to the option expiry) with more than 20 million allowances traded in the benchmark contract only (compared to the March average 12.7 million).
EUA prices continued to trade in a tight range on Thursday. The Dec17 contract opened the day at 4.97 euro, then held around the 5 euro level throughout the rest of the day. The bellwether contract tested intraday high at 5.05 euro before closing the session at 4.98 euro, up 0.01 euro day on day and leaving a doji candle.
On the last trading day of the week, the benchmark carbon contract opened at 5.03 euro and fell continuously during the day. In the afternoon the price hit a new two month low at 4.71 euro, breaking below the key support at 4.85 euro. The settlement price at 4.77 euro represents a loss of more than 7% from the previous Friday.
The price landed in a vacuum on Friday and the next support level is at 4.61 euro, the 2017 minimum. At the moment we see the following reasons that might push the price towards the next support levels:
  • Although the number of auctions remains the same than last week, the volume offered increases as the Polish auction on Wednesday also offers allowances from a cancelled 2016 auction. 
  • The European Commission will publish updated information about 2017 free allocation on Friday, 31 March. The last update showed that Italy and Spain are the countries owing the most allowances to their installations. The Italian authority, however, published last week a decision (delibera) about the 2017 free allocation, which generally signals that the distribution of the free allowances is about to start.
  • Installations in the EU ETS have to report their 2016 verified emissions by Friday, 31 March. The market consensus is that due to a higher gas use in power generation emissions declined sharper than the linear reduction factor of the overall ETS cap (1.74%) resulting in an increase of the surplus allowances.
  • This is the week, when the UK triggers Article 50 of the Lisbon Treaty and starts Brexit negotiations with the EU officially. It is still uncertain how Brexit affects British companies' ETS membership.
  • Last, but not least, global investor mood soured after US President Trump was not able to convince his own party members to abolish Obamacare. His defeat increased scepticism about the other reforms that he promised during his election campaign and that lifted stock indices to record levels.

From the technical analysis' point of view, the space is open for the EUA Dec17 to test the support levels at 4.62 euro (2017 low) and at 4.01 euro (December 2016 low). The relative strength index (RSI) is in neutral territory, at 37 leaving space for further declines.   


Source: Bloomberg, ICE

Monday, March 20, 2017

EUA Dec17: Consolidation around the 200-day moving average

The benchmark carbon contract moved in a narrow range between 5.09 and 5.25 euro last week, but could not get away from the 200DMA (now at 5.13 euro).
After opening 1 cent below previous Friday’s closing level, the EUA Dec17 fell to a daily minimum at 5.09 euro last Monday. By the end of the day, however, it managed to recover and closed at 5.16 euro, a loss of just 0.2%. The price moved in a narrow range of 10 cents during the day. It left a doji candle indicating uncertainty of market participants.
The benchmark contract opened with a 2 cents gap up on Tuesday. The price jumped to a daily high at 5.23 euro in the morning, but moved in a narrow range of 14 cents later during the day. Although it touched Monday’s low at 5.09 euro, it did not hit a new local minimum. The price settled at 5.11 euro, 5 cents below Monday’s close (-1.0%). The loss pushed the MACD into negative territory which is a negative signal.
After testing the support level at 5.09 euro for the third time, the lack of auctions and the higher power prices helped the EUA Dec17 to climb to the 20DMA on Wednesday. The price reached a daily maximum at 5.25 euro and finished the day just 5 cents lower (+1.8% d/d). The traded volume of 8.2 million, however, remained below the February average of 10.4 million.
The benchmark carbon contract moved between the same daily minimum and maximum levels on Thursday than it did on Wednesday. Interestingly, the 5.09 euro level kept the price from falling for the fourth day already. After Wednesday’s white candle, however, a black one followed on Thursday. The price lost 5 cents (-1.0%) by the end of the day.
On Friday, the price moved in an even narrower range of 5.10 and 5.20 euro, to finish at the lower edge of the range, at 5.14 euro.
The price consolidates at the 200DMA and most of the technical signals do not point into a certain direction. The RSI is in a neutral territory (at 47) and the price moves between the two Bollinger bands. The only exception is the MACD that slipped below the zero line last week providing a bearish signal.
Fundamentals are also rather pointing downwards:
There will be five auctions this week, increasing the supply of allowances by more than 4 million in a weekly comparison. Most of the installations are covered for 2016 (meaning low compliance demand), while mild temperatures and cheap gas might dent the appetite of utilities as well. This might result in weak auction results this week.
All in all, we see more signals pointing downwards, but price levels around 5 euro are appealing enough for many companies to purchase allowances for future years when they might face higher prices due to the reform of the EU ETS. Our base range for this week is between 4.85 and 5.49 euro.


Source: Bloomberg, ICE


Monday, March 13, 2017

EUA Dec17: Four black candles pushed price back to 5 euro

The benchmark carbon contract produced four black candles last week and the last, white candle is also very tiny. The price returned to pre-Council meeting levels and fell below key support levels.
On the first day of the week the benchmark carbon contract consolidated above 5.50 euro. After opening at 5.55 euro, 5 cents below last Friday’s settlement price, it hit a new intra-day high at 5.59 euro (a local high from January). The EUA auction failed to show direction to the price, but energy fundamentals were rather bearish and Commission data showed that more than half of the 2017 free allowances have been distributed. As a consequence, the EUA Dec17 turned lower and finished the day at 5.49 euro, a loss of 2.00% or 11 cent.
The benchmark carbon contract remained stable for most of the day on Tuesday, but the last hour of trading brought sellers to the market who pushed the price to a new 4-day low.
Low gas prices (at 3-month low), high supply of allowances (free allocation and auctions) pushed the price of the EUA Dec17 further down on Wednesday. The price of the benchmark carbon contract returned to the pre-Council levels and to the 20DMA.
Thursday started in a negative mood for the EUA Dec17 again. The price fell steeply already in the first hour of trading and hit a new March low at 5.08 euro. There was no recovery by the end of the day and the price lost 11 cents of 2.1% in a daily comparison. The price fell below the key moving averages which will work as resistances in the future. In addition, the positive signal from the MACD was short lived. On Thursday it slipped below the signal curve warning about further possible losses.
On the last day of the week, we could see a small correction in the carbon price. After a surprisingly strong auction the benchmark carbon contract closed the day with a gain of 4 cents.
It seems that the positive momentum seen after the Council meeting is vanishing. The daily price range is narrowing again, just like we saw it before the Council meeting. In the lack of special carbon market events we expect the price to consolidate near the current levels. The first support might be the local low at 4.85 euro, followed by the 2017 minimum at 4.62 euro. Beside low prices in the energy mix (power, oil and gas) some important macro events might also have a negative impact on markets globally and the carbon market might be also affected. The US Federal Reserve is expected to raise interest rates by 25 basis points at its meeting on Wednesday. In addition, there is a chance that the British Prime Minister triggers Article 50 this week, starting officially the Brexit process.
On the other hand, levels near 5 euro are already appealing enough for many market participants to place their bids there. To the upside, the moving averages that represented a support two weeks ago, are now the first resistances.



 Source: Bloomberg, ICE

Monday, March 6, 2017

EUA Dec17: Carbon price hit 2-month high

The ambition showed by the Council regarding the reform of the EU ETS pulled the benchmark carbon contract to a new 2-month high last week.
The EUA Dec17 opened 4 cents above the previous Friday’s settlement price, but declined continuously on Monday to close at 5.20 euro, just 1 cent above the support level represented by the 200DMA. Although the fact that the 200DMA kept the price from falling further, the two last candles formed a bearish engulfing which was a negative sign. Market participants were cautious ahead of the key meeting of the Council of the European Union on the next day and feared that member states would not be able to strike an agreement. 
Depending on the headlines coming from the meeting of the European Council, the EUA Dec17 remained volatile on Tuesday. As the member states had agreed in the last hour of the trading session, the price finished the day with a gain of 0.8%. The hesitation of the market participants during the day was demonstrated by the doji candle the price left on Tuesday.
The agreement of the Council that leaves less flexibility between the free allocation and the auction share, proposes the cancellation of allowances after 2024  and the lack of auction supported the price on Wednesday. After Tuesday’s doji candle the EUA Dec17 moved upwards on Wednesday and gained 13% in a daily comparison. The price hit a daily maximum at 5.94 euro, a level not seen since the beginning of the year and managed to close just 3 cents below the daily high. The rally lifted the price above several resistance levels (which will work as supports in the future), but also above the upper Bollinger band. The 30DMA has been lifted above the 200DMA and the MACD climbed above the zero line that brightened the outlook for the next days.
On Thursday, despite hitting a new local high at 6.02 euro in the morning, the EUA Dec17 gave back almost all its gains from Wednesday. The price closed at 5.47 euro, a loss of 44 cents or 7.4%.
The price opened at the previous settlement level on Friday and after hitting an intra-day low at 5.42 euro, it recovered and closed the day at 5.60 euro, a weekly gain of 3.9%.
Despite the fact that the price was not able to hit a new local high on the last trading day, the technical picture is positive. The 20 and 30DMAs climbed above the 200DMA and the MACD reached the positive territory last week. The RSI is in neutral territory leaving some room for further appreciation. The only warning signal is that the price closed close to the upper Bollinger band at 5.68 euro.
We expect the price to consolidate at higher levels than it did in January and February. Our base range for the week is between the moving averages (5.20 euro) and last week’s high at 6.02 euro.
Expectations about ambitious reforms and some compliance interest will continue supporting the carbon market. The higher auction volume (5 auctions this week with a volume more than 4 million higher than last week) and the 2017 free allocation, however, might limit gains.