Monday, October 16, 2017

EUA Dec17: MACD climbed above signal curve on week of trilogue

Expectations about and results of the trilogue negotiations about the reform of the EU ETS kept the price of the EUA Dec17 in motion last week.

The benchmark carbon contract opened with a 5 cents gap up from previous Friday’s settlement price on Monday. The weak energy mix and the uncertainty about the trilogue however pushed the price to a daily minimum of 6.83 euro, but the strong auction and confirmation of Mrs. Girling as ETS rapporteur reversed the price that hit a daily maximum at 7.07 euro. By the end of the day the negative effect of the energy mix proved stronger and the contract closed with a loss of 4 cents (-0.6%). 

On Tuesday, the EUA Dec17 opened with a 3 cents gap down and slipped to an intraday minimum at 6.89 euro. The price started increasing before noon, and started a real rally when it reached the 7.05 euro level. Although the rest of the energy mix remained calm, the EUA Dec17 hit a daily maximum at 7.32 euro, a level not seen since 29 September. In the last hour of trading, the price stabilized between 7.27 and 7.32 euro and closed at 7.39 euro, a gain of 43 cents (+6.2%). 

On Wednesday, the EUA Dec17 started the day in a positive mood and with a 4 cents gap up. Higher power prices and optimism about the outcome of the trilogue meeting lifted the price to an intraday maximum at 7.54 euro, a level not seen since 14 September when the price reached 7.72 euro. In the last hour of trading, however, traders took their profit from the recent short rally. The price closed at 7.38 euro (the upper Bollinger band exactly), a marginal loss of 1 cent from Tuesday.

On the day of the fifth trilogue meeting, the benchmark carbon market had a volatile day. It opened with a 3 cents gap down, but was stable in the morning hours between 7.30 and 7.40 euro. Approximately at the time of the start of the trilogue meeting, the price started to fall sharply and hit a daily minimum at 7.20 euro. The reversal was even sharper, as the contract jumped almost 40 cents to hit a new October high at 7.59 euro. In the last two hours of trading the price lost 20 cents from its daily high and closed at 7.41 euro, a gain of 0.4% in a daily comparison. The rally on Tuesday and the jump on Thursday lifted the MACD above the signal curve, a positive sign.

The disappointment about Thursday’s trilogue not being the last one, pushed the price down in Friday’s opening already (16 cents gap down). The contract finished the day with a loss of 1.2%, but in a weekly comparison, the price gained almost 5% and the traded volume increased by almost 30% week on week.

After last week's volatility because of the trilogue, we expect a more quiet week this time. Market participants are eager to know the date of the next trilogue about the reform of the EU ETS. Media sources reported last Friday that the date has been tentatively set for 8 November, meaning that it would take place during COP23, but there is still a chance to reach an agreement before the biggest international conference of climate change ends. According to the German environment ministry not more than one meeting is still necessary to agree on the different reform points.

On the other hand, deteriorating dark spread (the profitability of German coal fired power plants fell to 1.2 euro per megawatt hour from levels above 2 euro on expensive coal) and above the seasonal average temperatures might cap gains. Our base range for this week is 7.00 and 7.70 euro.


Source: Bloomberg, ICE

Monday, October 9, 2017

EUA Dec17: Growing uncertainties about this week's trilogue

With the next trilogue meeting approaching and market participants getting more cautious, the volatility in the carbon market decreased last week. Risk averse traders pushed the EUA Dec17 price down by 1%, but kept it very close to the psychologically important 7 euro level.

The EUA Dec17 started last week with a 5 cents gap up, but declined continuously from the opening level on the weak energy mix. The price hit a daily minimum at 6.83 euro (just 2 cents below the 20DMA that worked as a support in recent days) before returning to 6.94 euro. The contract lost 13 cents or 1.8% by the end of the day. The traded volume of 14.2 million remained well below the September average of 19.7 million. 

The EUA Dec17 started Tuesday in a negative mood opening 3 cents below Monday’s settlement. The price slipped to a daily minimum at 6.88 euro before reversing. The lack of auction and the higher power prices lifted the price back above 7 euro. After hitting a daily maximum at 7.13 euro, the price turned slightly lower to close the day at 7.00 euro, a gain of 6 cents or 0.9%. The traded volume of 7.7 million allowances reflected the public holiday in Germany. 

On Wednesday, the benchmark carbon contract fell 10 cents from previous day’s close and settled at 6.90 euro, at the lower end of the session’s trading range. Prices jumped to intraday high shortly after the auction and hovered around 7 euro until the last hour of trading when sellers pushed prices down. 

Despite the strong energy mix, the EUA Dec17 was not able to climb above 7 euro on Thursday. After opening with a 2 cents discount below Wednesday’s settlement price, the benchmark carbon contract declined continuously to hit a daily minimum at 6.79 euro, a level not seen for a week. Buyers then lifted the price in the afternoon back to 6.95 euro, but gains could not be kept and the price closed the day with a loss of 1 cent (-0.1%). 

The EUA Dec17  opened with a 4 cents discount on Friday. The price slipped to an intraday minimum at 6.77 euro before reversing and increasing to a maximum of 7.05 euro as coal prices fell and the German dark spread improved. The benchmark carbon contract closed the week at 7.00 euro exactly, representing a daily gain of 1.6%, but a weekly loss of 1%.

Although the 20DMA lost its role as support level last week, the gravity at 7 euro is still working properly and every time the price slips to 6.80 euro, buyers lift the price back towards the psychologically important level.

The most awaited event of this week will be the trilogue on Thursday, 12 October. EU ambassadors adopted a new mandate for the negotiations last Friday, allowing for the cancellation of allowances from the market stability reserve from 2023 on. This news could in theory increase the price of allowances, but there are still many topics where the preferences of the Council and the European Parliament differ decreasing the chances that this could be the last trilogue.

The fact that UK PM Theresa May suspended ETS rapporteur Julie Girling from the Tories this Sunday is complicating the situation further. It is still not clear how this will affect the ETS reform negotiations. Last time when Mrs. Girling was appointed to replace previous rapporteur Ian Duncan, the EU parliament reacted quickly, but it has to be seen if this will be the case this time as well. Still, this uncertainty might keep a cap on potential price gains.

Other factor weighing on the prices will be the auction volume increasing by almost 30% in a weekly comparison. (Last Tuesday was a bank holiday in Germany an d no auction took place on EEX.)

All in all, we remain cautious for this week and expect the price to move between 6.70 and 7.40 euro.


Source: Bloomberg, ICE

Monday, October 2, 2017

EUA Dec17: 20% less allowances to be auctioned this week

Helped by the improving German dark spread and optimism about the reform of the system, the EUA Dec17 gained more than 6% last week. 

The EUA Dec17 started the previous week with a spectacular rally and jumped by more than 10% during Monday's trading session hitting a new local maximum at 7.36 euro. The price broke above the previous resistance at 7.20 euro that halted appreciation many times in the past, but the contract was not able to reach the September high at 7.72 euro. The traded volume of 37.9 million allowances was a new record. 15.1 million has been traded / rolled over to Dec18. The price kept most of its gains until the market closed and it finished 63 cents or 9.5% higher. 

After opening with a two cents gap up on Tuesday, the EUA Dec17 turned lower and hit a new daily minimum at 6.88 euro. But exactly when traders expected the benchmark carbon contract to give back all the gains of Monday, the price turned higher again. By the end of the day, the EUA Dec17 climbed back shortly above 7 euro, but settled with a loss of 30 cents or 4.1% at 6.98 euro. 

The EUA Dec17 had a weak start to the day on Wednesday and slipped to the 20 day moving average. Although the price climbed higher in the second half of the day, it still closed with a loss of 5 cents (-0.7%). 

On Thursday, the EUA Dec17 opened flat and slipped to a daily minimum of 6.78 euro in the morning hours. The strong auction (clearing price in line with the secondary market) lifted the price back towards 6.90 euro. Early in the afternoon, the price of carbon started rallying hand in hand with Western power prices on the announcement of the French nuclear safety authority to shut down 4 generation units at the Tricastin nuclear power plant. The price hit a daily maximum at 7.33 euro, just 3 cents below Tuesday’s maximum. By the end of the day however the effect of the announcement vanished in both power and carbon markets. The EUA Dec17 finished the day at 6.96 euro, just 3 cents above Wednesday’s settlement. Thursday’s candle was a doji showing hesitation of the market participants about which direction to take.

On Friday, the price opened with a 10 cents gap down, but increased continuously during the day. The rally accelerated after the auction cleared at a premium to the secondary market. After reaching a daily maximum at 7.29 euro, the price turned lower. It closed the day with a gain of 1.6%.

This week, the volume of auctioned allowances will decrease by more than 20% as there won't be any auction on Tuesday due to a public holiday in Germany (Reunification Day). The lower supply could support the price and keep it above the 7 euro level. 

Technical discussions about the reform of the EU ETS continue on Thursday. Any leaked information about support for more ambition could also have a positive effect on the carbon market.

Energy mix could be still the most important factor impacting the price of allowances. The seasonality chart of the EUA price shows that prices tend to increase in October with the official start of the heating season. In addition, carbon (and power) market has the inspection of the French nuclear safety authority ASN as Damocles' sword above their heads.

From a technical perspective, the benchmark carbon contract established an increasing trend channel since mid-May from which it broke beginning of September as the price increase accelerated. In the last two weeks the price moved in a triangle near the 7 euro level. From the downside, the 20DMA (at 6.85 euro) provides a good support, followed by the 30DMA and local minimums close to 6.50 euro. To the upside, local highs near 7.40 euro represent the first strong resistance. We expect the price to move within the above range before the next trilogue meeting.



Source: Bloomberg, ICE



Monday, September 25, 2017

EUA Dec17: Price heads back into trend channel

Lower power prices and the deteriorating profitability of coal fired power plants weighed on the price of carbon last week. The benchmark contract lost 4.3% in a weekly comparison.

As expected, the EUA Dec17 had a quiet start to the week. It opened with a 2 cents gap up and hit a daily maximum at 7.05 euro before falling to an intraday minimum of 6.71 euro. The daily range of 34 cents was significantly narrower than the 44-68 cents seen in the last week. The traded volume of 11.9 million allowances in the benchmark contract was also below the average of last week at 20 million. The price closed down 22 cents or down 3.2% from last Friday. 

On Tuesday, the benchmark carbon contract opened flat compared to Monday’s settlement and traded comfortably around 6.80 euro until the auction. 10-15 minutes after the auction, the price started rallying on news about ASN extending the inspections at EDF’s nuclear power plants. The front year German power and the EUA were jumping hand in hand. The EUA Dec17 reached a daily maximum at 7.20 euro. It retreated in the afternoon, but remained above the 7 euro level and closed the day with a gain of 29 cents (+4.3%). The traded volume of 34 million was the highest this year, although big chunk of it came from block trades and from rolling positions to Dec18 (13.8 million). 

The benchmark carbon contract opened with a 6 cents gap up on Wednesday, but declined continuously during the day on lower power prices and the deteriorating dark spread. The price reached a daily minimum at 6.79 euro, but managed to return back higher. The EUA Dec17 still finished the day in the red losing 12 cents or 1.7%. The MACD slipped below the signal curve, providing a bearish signal for the next days.

On Thursday, the EUA Dec17 repeated Wednesday’s pattern: it opened flat to previous day’s close and declined continuously during the day pressured by falling power prices and deteriorating dark spread. The price hit a daily minimum at 6.47 euro, a level not seen since 6 September. The price closed at 6.56 euro, the 20DMA exactly. The traded volume of 19.5 million allowances was the second highest this week. 

The EUA Dec17 consolidated comfortably around 6.60 euro in the first half of Friday, but in the afternoon, approximately after the time the British PM held her speech in Florence, buyers lifted the price to a daily maximum at 6.74 euro. By the end of the day, the price retreated somewhat, but still closed 9 cents (+1.4%) higher.

In the first half of this week, market will have to digest the German election results, especially the surprising success of right wing AfD. The euro weakened versus the USD immediately after the publication o the first results and if it is not able to consolidate again, it will deteriorate the German dark spread and have therefore a negative impact on the price of carbon.

On Monday, carbon market participants will also keep an eye on the meeting of the representatives of the Council and the European Parliament, as they will discuss the amended draft to extend the Stop the clock measure for airlines and the limitation of the eligibility of the UK allowances in the case of a hard Brexit. 

As the price of carbon showed a strong correlation with that of German power recently, the weather forecast about above average temperatures this week might also weigh on power and carbon prices. 

All in all, we expect the price of the EUA Dec17 to move between 6.00 and 7.00 euro this week, meaning that the price returns into the increasing trend channel that started mid-May.



Source: Thomson Reuters, ICE

Monday, September 18, 2017

EUA Dec17: Price might consolidate near 7 euro

Despite hitting the highest level in 2 years at 7.72 euro last week, the EUA Dec17 finished the week 1.7% lower in a weekly comparison. 
After the news from last weekend about MEPs planning measures to reduce the negative effects of Brexit on the carbon price, the EUA Dec17 opened in a positive mood on Monday. The first transaction of the day cleared at a 4 cents gap up from previous Friday’s settlement price. After hitting a new 2-year high at 7.20 euro, traders took profit and pushed the price below 7 euro, to a daily minimum of 6.71 euro. The price recovered slightly by the end of the day, but it remained below 7 euro and in the negative territory. 
Forecasts of abundant wind power supply, position reduction before key political events and profit taking from the recent rally pushed the price of the EUA Dec17 intraday 5% lower on Tuesday to hit a daily minimum at 6.52 euro. In the last two hours of trading, however, buyers returned to the market and lifted the price back to Monday’s closing levels. The benchmark contract settled with a marginal loss of 0.1%. The daily candle looked like a hammer trying to find a bottom. Opening and closing prices were close to each other, indicating that the price is looking for a direction. 
Supported by a strong energy mix (German front year power hit a new record), the benchmark carbon contract climbed continuously higher on Wednesday to hit a new 2.5 year high at 7.22 euro. Although the price fell back slightly by the end of the day, it still closed with a gain of 3.3%. 
EU legislators apparently are on the path to adopt reforms that make the EU ETS more effective and EUAs more expensive. The EUA Dec17 opened therefore with a 5 cents gap up on Thursday and jumped to a new 2 year high at 7.72 euro, a level not seen since January 2016. The price turned lower in the last hours of trading to close at 7.10 euro, flat to Wednesday (shooting star / gravestone candlestick). The traded volume of 30 million was the highest of the week. 
On Friday, the benchmark carbon contract seemed to have lost its steam. It opened 1 cent below Thursday's settlement and although it was able to close the gap, it slipped lower during the day to end the day with a loss of 2.1%.
At the end of the week we could see a correction starting in both German front year power and carbon. After being overbought for weeks, the relative strength index of these instruments returned to 70 again. (In the case of German front year power to 74.) 
The EUA Dec17 also returned below the upper Bollinger band. 
This week, the carbon market might take direction from the five auction results and the broader energy mix. This week some 22.6 million allowances will be offered, some 10.8% less than last week. Last week's volumes were increased by the cancelled auction 7 September, while this week only Monday's auction volume will be increased.
After last week's vote in the plenary of the European Parliament and the trilogue meeting about the reform of the EU ETS, this week the political agenda is more exciting from the macroeconomic perspective. The US Federal Reserve holds a rate setting meeting on Wednesday. Although no changes to the current interest rates are expected, the communication during the press conference later in the day might be decisive for the EUR / USD, if the Fed Chair Yellen hints on future policy tightening.
On Friday, UK PM May holds a speech about Brexit in Florence. The event is watched by the market as there has been no real progress in the negotiations until now.
And last but not least, Germany elects a new parliament on Sunday. Polls suggest that market shouldn't expect any major changes in the current composition of the parliament and the government, but investors might remain risk-off remembering the disappointment after the Brexit referendum and the US presidential elections.
All in all, we expect the carbon market to consolidate near the 7 euro level this week with a somewhat lower volatility than we saw in the last two weeks.


Source: Bloomberg, ICE


Monday, September 11, 2017

EUA Dec17: Investors focus on the trilogue negotiations Wednesday afternoon

The EUA Dec17 gained more than 1 euro in one week and hit an almost 2 year high on Friday. The benchmark carbon contract closed the week with a gain of more than 20%.
The EUA Dec17 started the week at the level it finished last week. Previous Friday’s minimum at 5.82 euro proved a good support, because after hitting it in the morning, the price climbed higher continuously during the day to hit a daily maximum at 5.95 euro. The carbon market received support from higher power prices and improving profitability of coal fired power plants. The news about Germany and France pushing for a quick consensus about the reform of the ETS had a positive effect as well. The closing price of 5.92 euro represented a gain of 1.5% from last Friday.
The EUA Dec17 gained almost 10% on Tuesday, rallying from a daily minimum of 5.91 euro to a new 8-month high at 6.53 euro. The jump came as a surprise for most of the market participants who expected the price to drop considering previous week’s correction and the increasing auction volumes. Those who saw the price falling last week of August, either sold their allowances or they even went short. When the price started increasing, all these market participants were caught by surprise. Those who sold below 6 euro, bought back the allowances to sell them at a higher price. And those who opened short positions, saw their stop loss orders triggered. The traded volume in the Dec17 contract reached 18.9 million versus the 7 million on Monday and the August daily average volume of 9.7 million.
The EUA Dec17 was unstoppable on Wednesday again and expanded its gains by more than 3%. The price hit a daily maximum at 6.93 euro, a level not seen since April 2016. Market participants got more optimistic about the success of negotiations and lifted the price to new local highs.
On Thursday, the benchmark carbon contract started with a consolidation after the rally of the previous days. It opened 4 cents above Wednesday’s settlement price and even slipped to a daily minimum of 6.64 euro when the auction was cancelled on EEX. In the afternoon, however, bulls invaded the trading floor again and lifted the price to a daily maximum of 7.02 euro.
The EUA Dec17 gained an additional 2.5% on Friday and was able to close above the 7 euro level since January 2016.
Last week's rally lifted the RSI of the EUA Dec17 into overbought territory (again), but market participants do not seem to care. 
The question is what is really behind the price jump, the restart of political negotiations or the strong energy mix (the price of front year German power hit a 3.5-year high on Friday). 
If traders take profit after the trilogue negotiations this Wednesday, it becomes clear that speculation on political discussions lifted the price. Representatives of the EU member states meet MEPs Wednesday late afternoon to discuss the reform of the EU ETS. Based on the information market received about behind closed doors discussions last week positions came closer, but they are still distant on the triangle of issues (ambition, auction share and funds). Signs of a smooth agreement on an ambitious reform package could lift the EUA price, but further delays and / or no signs of ambition could hurt the price.
If, however, the price advances further this week, there is a good chance that the appreciation is fundamentally driven. From the technical analysis' point of view there is no strong resistance until 8.49 euro (a local high from December 2015) from where the price started plummeting in January 2016.
The increased auction volume will make the job of bulls a little bit more difficult. Due to the cancelled auction last Thursday the daily volume of the EU auctions on EEX (Monday, Tuesday and Thursday) increases by 1 million units.

Source: Bloomberg, ICE


Monday, September 4, 2017

EUA Dec17: High auction volume will weigh on the price

As the seasonality charts of the EUA price suggested, the last week of August brought a correction to the market. Although in a monthly comparison the price gained 13.6%, in a weekly comparison it lost 4.1%.
After the previous week’s rally, some late coming buyers lifted the EUA Dec17 to 6.20 euro Monday morning, a level not seen since 2 January. The price was stable during the day as it received positive signals from the broad energy mix and was also supported by the lack of EUA auctions. In the last hour of trading market participants started to take profit and the price fell to a daily minimum of 6.08 euro, filling the gap from the morning. The traded volume of 2.5 million was the lowest in 2017. The price closed at 6.10 euro, just one cent above last Friday’s settlement.
The EUA Dec17 had a strong start to the day on Tuesday. It opened with a 3 cents gap up, and jumped to a daily maximum of 6.18 euro in the first hour of trading already. After the weak auction, the price turned down and slipped continuously to reach a daily minimum at 5.96 euro. Below 6 euro, however, buyers stepped in and lifted the price back to a closing price of 6.04 euro, which still represented a daily decline of 1.0%.
Although the benchmark contract opened with a 5 cents gap down at 5.99 euro on Wednesday, this remained the daily minimum as the price increased continuously during the day. The daily maximum was reached at 6.12 euro, but by the end of the day the price returned towards 6 euro and closed with a marginal loss of 1 cent (-0.2% d/d). The traded volume reached 10.6 million, the highest in the last four trading days.
On Thursday, the EUA Dec17 opened 1 cent below Wednesday’s settlement price and was slipping lower step by step during the day. In the afternoon, the price hit a daily minimum at 5.87 euro (just one cent above the Marubozu line), but it was able to climb back higher to finish at 5.94 euro (-1.5% d/d). The traded volume of 8 million was below the 10.6 million of Wednesday and the August average of 9.7 million.
The price remained relatively stable on Friday and traded between 5.90 and 6 euro, but the last hour of trading brought sellers to the market who pushed the price to a daily minimum at 5.84 euro (so the support at the Marubozu line was broken). The price settled at its daily (and weekly) minimum providing a negative signal for this week’s start. In addition, the MACD slipped below the signal curve on Friday.
This week might have a sleepy start due to the US holidays on Monday (Labour Day).
In the carbon market, traders will watch closely the auction results to see if the market is able to absorb 21.5 million allowances, 93% more than last week.
It will be also important to see, if the price of German power continues its movement downwards, because this might weigh on the carbon price as well. 
On the other hand, the if the correction in the price of coal continues, it can counterbalance the negative effect of lower power prices (at least partially) and provide some support to the EUA price. The spreads could be also affected by major movements in the EUR / USD, especially after the rate setting meeting and the press conference of the European Central Bank Thursday afternoon.
All in all, we expect the decline in the EUA price to continue this week, and the price to move between 5.50 and 6.00 euro.


Source: Bloomberg, ICE




Monday, August 28, 2017

EUA Dec17: Closing above 6 euro for the first time since January

Higher power prices and the improving German dark spread lifted the benchmark carbon contract by 4.6% last week.
The EUA Dec17 started the week with a gap down at 5.79 euro, but it managed to recover quickly and climbed to a daily maximum at 5.91 euro. A weak auction result and lower German power prices weighed on the carbon market in the afternoon and the price hit a daily minimum at 5.73 euro. The contract was not able to recover from these levels and finished at 5.75 euro, a loss of 1.2% from previous Friday’s settlement. After the volumes above 10 million we saw last week, the traded volume only reached 5.4 million. Thanks to the correction, the price returned in the zone between the two Bollinger bands and the relative strength index slipped below 70.
On Tuesday, the benchmark carbon contract moved in a range of 15 cents. The price was relatively stable in the morning and more volatile in the afternoon when it fell to a daily minimum (and 4-day low) of 5.66 euro. Higher power prices and the improving dark spread however lifted the price by the end of the day. The price finished the day with a gain of 0.5%.
Despite opening with a gap down on Wednesday, the EUA Dec17 climbed continuously higher as it received support from higher power prices and an improving German dark spread. After Reuters reported that EDF found unknown deviations in its nuclear power plants, the price hit a daily maximum at 5.98 euro in the afternoon, a new 5-month high. The contract remained stable until the end of the day and closed at 5.95 euro (+2.5% d/d). The traded volume reached 32 million due to rolling of positions to March and December 2018. Thanks to the rally, the price reached the upper Bollinger band again and the relative strength index stepped above 70.
Although many market participants considered the price of the EUA Dec17 overbought already, the price started rallying Thursday morning already. After reaching the local maximum at 6.02 euro, many stop-loss orders were triggered and the price jumped to a new local maximum at 6.11 euro first. Then the price returned to 6 euro, but a new rally started in the afternoon and lifted the price to 6.12 euro. From there the price was not able to increase any further and it fell back to below 5 euro late in the afternoon. The benchmark carbon contract finished the day at 5.95 euro, unchanged from Wednesday’s settlement price.
The EUA Dec17 opened with a 2 cents gap up on Friday. The price fell to a daily minimum at 5.93 euro, but recovered quickly and climbed higher continuously during the day. The price hit a daily maximum at 6.10 euro in the afternoon and kept gains by the time the market closed. The settlement price of 6.09 euro was 2.4% higher than on Thursday. Last Friday was the first time since 2 January that the EUA Dec17 closed above 6 euro. The traded volume of 6.8 million however was the second lowest of the week.
This week might have a quiet start due to the Summer Bank Holiday due to which there won't be any auction on EEX on Monday. 
There will be auctions from Tuesday to Friday however and the auction on Friday will offer more than 4 million allowances as the period of halved auction volumes ends. The German auction will be a test of the market, if it has enough appetite to absorb all the allowances.
Should power prices be able to increase further, their positive effect might counterbalance the increasing supply. 
On the other hand, based on the relative strength index both carbon and the German front year power price are overbought already. 
We therefore expect the price of the EUA Dec17 to remain in the increasing trend channel and probably to reach 6.30 euro, but the high auction volume and a possible correction in power prices might push the price below 6 euro again. On the other hand we do not expect the price to fall below 5.70 euro.

Source: Bloomberg, ICE



Monday, August 21, 2017

EUA Dec17: Power prices and auction result have still the biggest impact


The EUA Dec17 jumped to a new 5-month high last week and gained 8% as the announcement of the French nuclear safety authority about checking reactor components lifted French and  German power prices to multi-year highs.
The week started with a volatile trading. The EUA Dec17 ran from 5.32 euro to 5.46 euro in the first five minutes of trading on Monday. And when everybody thought that the contract has set the daily range already, the price jumped further to hit 5.53 euro, a level not seen since mid-July. For the rest of the day the price consolidated around 5.50 euro. The benchmark contract finished the day at 5.52 euro, a gain of 2.4%. The traded volume increased above 10 million, for the first time in August, but remained above 10 million for the rest of the week.
The lack of auction lifted the price of the benchmark carbon contract to a new 5-month high at 5.64 euro on Tuesday. The former resistance at 5.47 euro on the other hand proved a good support during the day. As the energy mix was not supportive at all, the EUA Dec17 was not able to maintain its gains and slipped back to the level it closed on Monday and finished the day with a marginal gain of 1 cent (+0.2% d/d) leaving a bearish shooting star candle stick.
The EUA Dec17 had a spectacular rally on Wednesday helped by a strong auction and higher German power prices. The price increased continuously during the day to hit 5.83 euro, a level not seen since March 2017. As the news about the review of the French nuclear reactors prevailed, the contract was able to keep almost all its gains by the end of the day and closed 4.9% above Tuesday’s settlement price.
The EUA Dec17 had another volatile start to the day on Thursday. After opening with a 3 cents gap up in the morning, the price plummeted quickly to a daily minimum at 5.70 euro. In less than 30 minutes the price then jumped to a daily (and 5-month) maximum at 5.96 euro, but consolidated in a range between 5.76 and 5.88 euro in the rest of the day. The contract finished at 5.81 euro, up 1 cent (+0.02%) from Wednesday’s settlement. The traded volume reached 12 million, above the August average, but below Wednesday’s 21 million. After the huge white candle on Wednesday, the price left a doji candle on Thursday that indicated hesitation of the market participants if the rally can continue. The RSI jumped above 70 and the price traded above the upper Bollinger band. Both these signals confirmed the possibility of a correction.
On Friday, the price was not able to hit any new high and the daily range of 15 cents was also narrower than the previous days. The EUA Dec17 was only able to post a marginal gain of 1 cent (+0.2%).
By the end of last week the price got heavily overbought. The relative strength index ended the week at 73 (textbooks on technical analysis agree that relative strength index values above 70 suggest that the instrument is overbought) and the price of the benchmark carbon contract closed at the upper Bollinger band (at 5.82 euro). 
Also the positive effect of the news about the review of the French nuclear power plants vanished somewhat as in the beginning only documentation will be checked and the authority did not order the closure of the plants.
Market participants will keep an eye on further news about the French nuclears and on power prices (both in France and Germany). 
The second most important factor impacting carbon prices will be auction results this week. In five auctions some 10.8 million allowances will be offered, 20.6% more than last week. Next Friday, 1 September however auction volumes will get back to normal and market participants might start pricing this in already.
All in all, we expect the price of the EUA Dec17 to consolidate between 5.50 and 6.00 euro this week.



 Source: Bloomberg, ICE

Monday, August 14, 2017

EUA Dec17: Auction volume to decrease further due to public holiday

After a relatively strong start the EUA Dec17 turned lower last Monday morning. The decline accelerated after the auction cleared at a 6 cents discount to the secondary market, and the price hit a daily low at 5.27 euro. The improving dark spread helped the price in recovering until 5.32 euro in the afternoon, but the price turned lower in the afternoon again to finish the day with a loss of 1.3%. To reflect summer mood, the traded volume fell further from the daily average of 7.7 million seen last week to 3.7 million.
The EUA Dec17 contract opened Tuesday’s session at 5.32 euro and traded between 5.25 euro and 5.34 euro, before ending the day at 5.27 euro, where it also closed on Monday. A modest volume of 4 million EUAs were traded.
Despite opening one cent below Tuesday’s settlement price, the benchmark carbon contract recovered quickly and hit a daily high at 5.41 euro already before Wednesday noon. The price received good support from a strong energy mix. Especially, the improving dark spread had a positive effect. As a consequence, the price finished the day with a gain of 10 cents (+1.9%). After trading close to the lower edge of the increasing trend channel for two days, the EUA Dec17 returned higher and the risk of breaking below the trend channel decreased again. Tuesday`s and Wednesday`s candles formed a bullish engulfing, generally a positive sign, although the low summer volume does not support the technical signal.
The EUA Dec17 opened with a two cents gap up on Thursday and explored levels not seen since 19 July by hitting 5.47 euro during the day. Although power prices climbed higher, the rally in coal prices deteriorated the German dark spread and weighed also on the price of allowances. As a consequence, the price gave back all its gains from the day, and closed at 5.37 euro, unchanged from Wednesday’s settlement.
The price had a relatively volatile day within a 12 cents range on Friday. The price started the day at Thursday`s settlement level and slipped briefly to a daily minimum at 5.34 euro to climb to 5.46 euro early in the afternoon. By the end of the day the price returned close to its opening levels and kept only 2 cents from its gains.
Thanks to the reduced auction supply and the higher power prices, the increasing trend channel is unhurt and is expected to keep the price also this week.
There will be a total of 8.9 million allowances auctioned this week, 17.1% less than last week. There will be only four auctions this week due to a public holiday in Germany on Tuesday (Assumption Day). 
The lower auction volume will continue to support the price of allowances this week again, but temperatures returning to or below the seasonal average will decrease the demand for power for air conditioning, potentially also reducing the demand for allowances. We therefore expect the price of allowances to move between 5.20 and 5.62 euro this week.


Source: Bloomberg, ICE


Monday, August 7, 2017

EUA Dec17: First week of reduced auction volume brought a gain of 3.3%

Although it opened the day flat compared to previous Friday’s settlement, the EUA Dec17 fell quickly to a daily minimum at 5.10 euro Monday morning. The shock didn’t last long and the contract recovered to trade comfortably between 5.19 and 5.23 euro before the auction. The strong auction result then lifted the price to a new daily maximum at 5.29 euro. The worsening of the dark spread capped the gains. The benchmark contract therefore finished the day at 5.23 euro (+1.0% d/d). Monday’s candle was another doji, indicating the uncertainty of market participants about which direction to take. On the other hand, the 30DMA climbed above the 200DMA, generally considered as a positive signal. The traded volume of 5.7 million in the most liquid contract reflected summer mood already.
The benchmark carbon market moved flat in the first hours of trading on Tuesday, but the surprisingly strong auction result lifted the price to a daily maximum of 5.38 euro. Traders realized shortly after the auction that the high clearing price might have been a mistake and does not reflect real demand for the allowances. So the price returned to 5.30 euro where it stagnated until the end of the day. The closing price represents a gain of 7 cents (+1.3%) to Monday’s settlement. The price closed at the upper edge of the 5.10-5.30 euro range it was trading last week. It also managed to close above the 20DMA.
The EUA Dec17 traded comfortable in a range between 5.25 and 5.30 euro most of Wednesday. In the afternoon however buyers lifted the price above the strong resistance level at 5.30 euro. The price was unstoppable until 5.43 euro, a level not seen for 2 weeks. The price remained close to its daily maximum and settled at 5.43 euro, a gain of 2.5%.
The front year contract opened with a two cents gap down on Thursday and fell quickly to a daily minimum at 5.37 euro. Although the settlement price of the auction was slightly below the secondary market price, the cover ratio was the second best for the week, so the price started climbing higher again in the afternoon. The daily maximum was 5.45 euro, a 2-week high. By the end of the day the price retreated a little, and closed the day at Wednesday’s settlement price, at 5.43 euro.
After opening at Thursday’s settlement price, the EUA Dec17 was able to hit a daily maximum at 5.46 euro, but after the weak auction, sellers pushed the market lower continuously. Price hit a daily minimum at 5.32 euro and stopped just above the 20DMA. The price was not able to recover, and closed the day (and the week) at 5.35 euro.

Beside the energy fundamentals, auction results will be the most important factors to influence the price of allowances. As market participants had enough time to price in the reduced auction supply, we expect the price to move between 5.00 and 5.60 euro.


Source: Thomson Reuters, ICE

Monday, July 24, 2017

EUA Dec17: Last week with complete auction volume before August

The sell-off last Friday sent the benchmark carbon contract more than 6 lower in a weekly comparison.
The EUA Dec17 had a sleepy start to last week. The price traded comfortably in a 10 cents range between 5.39 and 5.49 euro. No new local minimum or maximum was reached. The price closed at 5.44 euro, closer to the upper edge of the daily range (+0.4% d/d). The traded volume decreased further. Last Thursday 18.5 million allowances traded in the benchmark contract, the Friday before this fell to 9.5 million and on Monday to 7.6 million.
The price of allowances posted another day of marginal gains on Tuesday. The front-year carbon contract rose steadily throughout the session receiving a push from the healthy auction results to test the upside at 5.58 euro in the late afternoon. However, the last half an hour of trading brought the prices back and they slipped almost to the daily lows. The EUA Dec17 contract closed the session at 5.46 euro, up 0.02 euro from the previous close.
The benchmark carbon contract was held in a 10 cents range on Wednesday. The price held relatively stable the whole day, but in the last hour of trading sellers pushed the price down by several cents. The EUA Dec17 finished the day at 5.39 euro, down 7 cents from Tuesday.
The price of the EUA Dec17 traded in a 5 cents range until noon on Thursday, but due the selling pressure in the last hour of trading the EUA Dec17 closed at its daily minimum, at 5.30 euro on Thursday, a loss of 9 cents or 1.7%.
Although Thursday’s close at the daily minimum did not bode well for Friday, the EUA Dec17 opened stable on the last trading day. News about a stricter EU process regarding diesel cars however soured the investor mood globally. Brent lost 2.5%, stock markets turned sharply lower and the carbon market was no exemption. The EUA Dec17 fell to a daily minimum at 5.07 euro and was not able to recover by the end of the day, finishing the week with a loss of more than 6%.
The negative mood that reached the market last week might be dented by the fact that daily auction volumes will be halved soon. 
Sellers pushed the price on Friday below the main moving averages, but the price only fell to the lower edge of the increasing trend channel that started mid-May and managed to remain in it. Should the price fall from the trend channel, the first strong support is the June minimum at 4.77 euro.
If the looming reduced supply supports the price enough, the benchmark contract might retest the Fibonacci level at 5.36 euro.



 Source: Thomson Reuters, ICE

Monday, July 17, 2017

EUA Dec17: New 4-month high reached last week

The benchmark carbon contract hit a new 4-month high and gained 1.5% last week helped by stronger fundamentals.
The EUA Dec17 opened the week with a 6 cents gap up that was not filled completely on Monday. The price of allowances increased continuously in tandem with the price of German power. When latter hit a new 2-year high at 32 euro per MWh, the price of carbon reached 5.56 euro, a level not seen since March. When power prices started weakening in the afternoon, the EUA Dec17 also turned lower. It hit a daily minimum at 5.35 euro and finished the day with a marginal gain of 1.1% at 5.40 euro. Monday’s candle is a shooting star (long upper shadow, short lower shadow and very small body), a warning signal that the price could enter a phase of correction after trading above the upper Bollinger band.
Although the price opened with a 3 cents gap down on Tuesday, it was able to climb to a daily maximum at 5.49 euro in the morning. (Monday’s high at 5.56 euro could not be reached.) The weak auction result and the lower power prices pushed the price lower step by step in the afternoon. The contract hit a daily minimum at 5.27 euro, but managed to climb back higher by the time the market closed. The EUA Dec17 finished the day at 5.33 euro, a loss of 7 cents or 1.3% in a daily comparison, so Monday’s shooting start candle seemed to provide a reliable signal.
Most of Wednesday, the benchmark carbon contract traded comfortably in a 10 cents range, but bulls lifted the price to a new daily maximum in the last hour of trading. The price of allowances was lifted by a rally in oil prices after data showed that US crude oil inventories declined more than expected. By the end of the day the EUA Dec 17 climbed 2.8% higher and closed above the upper Bollinger band again.
Positive market mood lifted the price of the EUA Dec17 Thursday morning to a new 4-month high at 5.62 euro (also a Fibonacci level). In the last hours of trading, however, the price of the German front year power turned lower and also some profit taking started in the carbon market, resulting in a daily loss of 2.2%.
Despite some initial hesitation that pushed the price to a daily minimum of 5.29 euro, the EUA Dec17 recovered Friday afternoon and closed the day with a gain of 1.1%.
Last week the price of allowances followed the components of the energy mix and was less impacted by the result of the daily auctions. This might change this week as the offered volume increases by almost 3% due to the Polish auction on Wednesday.
The stable increase of the price of German power, the improvement of the German dark spread and the recovery of the Brent, on the other hand, could counterbalance the negative effect of higher supply.

The technical picture is rather neutral for this week. Although the benchmark carbon contract trades most of the time at or above the upper Bollinger band, the relative strength index (at 63) leaves room for further gains. The price moves in an increasing trend channel since mid-May.




Source: Bloomberg, ICE

Monday, July 3, 2017

EUA Dec17: Consolidation near the 5 euro level expected

The benchmark carbon contract got support from strong auctions and higher power prices last week. As a consequence, it climbed back above 5 euro and gained 3.3% in a weekly comparison. 
After a flat opening Monday morning, the EUA Dec17 was able to climb two cents higher to a daily maximum at 4.89 euro, but then the price fell continuously during the day. Power prices got under pressure by the energy efficiency targets adopted by the representatives of the EU member states and the carbon price followed power down. The benchmark carbon contract hit a new monthly low at 4.77 euro, and was not able to recover by the end of the day. The price settled at 4.78 euro, just one cent above the daily (monthly) minimum. In the last four trading days the price hit a new local minimum every day, setting the start of a declining trend. The last two candles formed a bearish engulfing, another technical signal warning of further possible sell-off.

Despite the negative signals from Monday, the strong auction result (with the highest cover ratio since 22 May) and the good performance of the energy mix lifted the price of the EUA Dec17 3.3% higher on Tuesday. Market mood was positive already in the morning. As a result, the contract opened with a 6 cents gap that was not filled completely during the day. The two cents gap left between 4.78 euro (Monday’ settlement) and 4.80 euro (Tuesday’s minimum) will work as support in the next days. The price climbed back to 4.99 euro, but returned below the 20 and 30DMAs by the end of the day.
On Wednesday, the benchmark carbon contract moved in a narrow range of 10 cents between 4.88 and 4.98 euro. After the strong start in the morning the price moved sideways during the day and sellers pushed the price to the daily minimum, but then the contract was able to recover. The price closed at Tuesday’s settlement price at 4.94 euro. The traded volume of 7 million is in line with the June average. The sideway movement was not enough for the 20DMA to stay above the 30DMA which adds to the other bearish signals the chart provided recently.
Wednesday’s positive sentiment lifted the price of the EUA Dec17 further Thursday morning. The price climbed above the 5 euro level already in the first hour of trading and rallied higher during the day. It almost reached the 200DMA, but turned back lower from that resistance to close at 5.07 euro, a gain of 2.6%. The price opened and closed above the 20 and 30DMAs and it also settled above the 5 euro level. Thursday’s candle was the first one that closed outside the short term declining trend channel.
The price was not able to climb any further on Friday, but remained above the 5 euro level despite finishing the day with a  loss of 0.8%.
The chart of the EUA Dec17 provides mixed signals right now. 
On the positive / neutral side, the MACD did not slip below the zero line due to the positive days last week. The price even climbed above the short term declining trend channel that has been established in June. The relative strength index is in neutral territory (at 55).
On the other hand, the price found a strong resistance at the 200DMA at 5.16 euro and the upper Bollinger band at 5.13 euro. The 20DMA slipping below the 30DMA is another bearish signal.
Trading activity might be dented in the first two days of the week, due to the US bank holiday on Tuesday (Independence Day).
There will be five auctions this week, offering 22.1 million allowances slightly (+2.3% w/w) compared to last week. If auctions continue well bid, like we saw last week, they might support the price again.
All in all, we expect the price of the EUA Dec17 to move around 5 euro, between 4.70 and 5.30 euro this week.


Source: Bloomberg, ICE

Monday, June 26, 2017

EUA Dec17: Market expects progress in trilogue on Tuesday

Although the supply of allowances increased by more than 70% in a weekly comparison, the benchmark carbon contract only hit a new monthly low at 4.83 euro last week, but it finished with just a marginal loss of 0.20%.
As the season of daily auctions restarted, the EUA Dec17 fell to a daily minimum at 4.85 euro on Monday, a level not seen since 24 May. The carbon market had a negative start to the day, but recovered later during the day as the energy mix turned green and the cover ratio of the auction was above the June average. In a spectacular rally in the afternoon the price hit an intraday maximum at 5.01 euro, but was not able to stay above the 5 euro level. Due to the sell-off in the last 10 minutes of trading the price fell to 4.93 euro. The benchmark contract still finished the day with a gain of 5 cents (1.0%). The traded volume was above 10 million, for the first time since last Monday.
After a positive start the EUA Dec17 climbed continuously until early afternoon on Tuesday. The price hit an intraday high at 5.05 euro, before falling back below the 5.00 euro level. The Fibonacci level at 4.90 euro proved a good support and the price turned higher before the end of trading too. The closing price of 4.95 euro represents a daily gains of 2 cents (+0.4% d/d).
The EUA Dec17 had a weak start to Wednesday opening with a 6 cents gap down. The price was still able to jump to a daily maximum at 5.01 euro in the morning, but after a hesitation around 4.99/5.00 euro the price turned lower in the afternoon. Pressured by a weak energy mix, the benchmark carbon contract fell to a daily low of 4.87 euro in the last minutes of trading and was not able to recover by the end of the day. The price closed at 4.88 euro, a loss of 7 cents or 1.4%. The trading volume, on the other hand, was the highest this week as yesterday was the expiry day of the June options.
The benchmark carbon contract moved sideway in a narrow range before Thursday’s auction, but after the auction cleared with an above average discount, to the price well to a new weekly low at 4.83 euro, a level not seen since 24 May. By the end of the day the price only could climb 3 cents higher, losing 2 cents in a daily comparison.
The daily trading range shrank further to 8 cents on Friday. After opening one cent below Thursday’s settlement price the previous daily maximum t 4,93 euro was retested, but only 1 cent could be kept from the gains.
The price slips slowly lower, it fell already below the most important moving averages and gets away from the 5 euro level. Although most of the technical indicators are not providing any special signal (the MACD still above the zero line and the relative strength index at 48), the Bollinger bands are narrowing, but other technical indicators do not provide any new technical signal. 
The auction supply decreases a little bit this week as the UK auction on Wednesday offers some 0.6 million EUAs less than the Polish auction last Wednesday. 
Market participants will also keep an eye on the second trilogue meeting on Tuesday. Since the European Parliament and the Council adopted their official positions about the reform  of the EU ETS in February, practically nothing happened to the file. The first trilogue in April did not bring any results and the second meeting end of May was cancelled. 
The meeting on Tuesday will be the first "test" of the ambitiousness of the new rapporteur of the file, Julie Girling. Any progress on the file could have a positive effect on the EUA price as market participants would like to see future uncertainties about the market eliminated as soon as possible.
Due to the above we expect the benchmark carbon contract to move between 4.67 euro (a Fibonacci level and also a support in January and in spring) and the 5.00 euro levels.




Source: Bloomberg, ICE