Monday, January 30, 2017

EUA Dec17: Last hour sell of pushed price back below 5 euro

The benchmark carbon contract had a relaxed start to last week. It traded between the support level at 5.30 euro and the resistance level at 5.60 euro on Monday.
After opening at 5.33 euro (the highest level of the day), the EUA Dec17 declined continuously to hit an intra-day minimum of 5.13 euro on Tuesday. The price was not able to recover by the end of the day and closed at 5.09 euro, a loss of 26 cents.
The EUA Dec17 was hesitating around 5 euro on Wednesday, but due to the high auction supply, the weak energy mix and the unchanged phase 3 free allocation, it closed below this level. Milder temperatures and  lower power prices continued to weigh on the price. As a consequence, the price finished the day 2 cents below the 5 euro mark.
Wednesday’s close below 5 euro invited buyers to the market and the EUA Dec17 climbed continuously higher on Thursday. The rally accelerated after the strong auction. The price hit an intra-day maximum of 5.25 euro and finished the day with a gain of 4.4%. The candle of the last 10 minutes suggested, however, that there might be traders on Friday taking the profit from their long positions due to the proximity of the resistance level at 5.30 euro.
The price remained stable for most of the day on Friday, but lost steam in the last hour of trading and turned back below 5 euro. The price closed just one cent above the weekly minimum at 4.91 euro which meant a weekly loss of 9.4%. 
With temperatures below seasonal average and the compliance season starting, the price found a support around 5 euro in the last week. On the other hand a strong resistance at 5.30 euro (20 and 200DMAs, Fibonacci level) limited the price appreciation and from this week on milder temperatures are expected. 
From a more distant perspective the price is moving sideways in a range between 4.60 and 5.60 euro since the second week of January. The number of black and white candles also suggests that the market is balanced (many market participants are well covered for 2016). 
The relative strength index (RSI) is in neutral territory (44) and the MACD is moving sideways below the zero line. The 20DMA, however, fell below the 30 and 200DMAs providing a bearish signal and increasing the chances for the price to trade rather near the lower edge of its comfort zone.
The first important event that could move the price out of this comfort zone will be the vote in the plenary of the European Parliament about the reform of the EU ETS 15 February. We might see prices moving sideways in the above range (4.60-5.60 euro) until then.

Source: Bloomberg, ICE

Monday, January 23, 2017

EUA Dec17: Rally after hitting a new 2017 low

Market mood turned gloomy last Monday (due to fears about hard Brexit and Trump’s threat to EU car makers). The situation got worse after the EUA auction which cleared at a 4 cents discount compared to the secondary market price and had a cover ratio below 3. After opening in line with last Friday’s settlement price the EUA Dec17 slipped lower continuously during the day. The price settled just 2 cents above the daily minimum, with a loss of 6.9%.
After opening 5 cents above Monday’s settlement price, the EUA Dec17 turned lower ahead of the next auction and the speech of the UK PM and tested the Fibonacci level at 4.62 euro (a new 2017 low). The strong auction result and the speculation that the UK Parliament could keep the country from leaving the EU in the very last minute, lifted the price of the benchmark carbon contract above 5 euro, to a daily maximum of 5.12 euro. Some investors decided to take profit from the short rally and the price closed therefore at 5 euro exactly (another Fibonacci level).
The benchmark carbon contract remained without direction on Wednesday. It opened with a 5 cents gap up, but turned lower immediately. After hitting a daily minimum at 4.82 euro, it recovered, but it was not able to climb back above 5 euro. The price settled at 4.84 euro, a loss of 16 cents or 2.6%.
The uncertainty continued on Thursday morning until the last hours of trading. In the afternoon, however, bulls invaded the market and  lifted the price above 5 euro. The rally accelerated when the price broke above 5 euro, which might have been a signal of short covering. The MACD was still in the negative territory and the RSI in the neutral territory, but the price closed above the declining trend channel which was a positive signal.
The rally continued on the last day of the week thanks to a strong energy mix. The benchmark carbon contract hit a daily maximum at 5.54 euro (two cents below the 20DMA) and closed the day with a gain of 23 cents or 4.4%.
In the last two trading days the price closed above the short term declining trend channel. Should the price be able to keep its strength, the next resistance is the 20DMA and a Fibonacci level at 5.61 euro, followed by a local high at 5.82 euro and another Fibonacci level at 5.99 euro. In a negative scenario, the price has to face the support levels at 5.30 and 5.00 euro.

Source: Bloomberg, ICE

Monday, January 16, 2017

EUA Dec17: Strong auctions kept the price near 5 euro

After the nosediving in the first days of the year, the strong result of the first auction of 2017 halted the decline of the price last Monday. The benchmark contract finished the day with a gain of 4.6%.
As the first auction results of the year did not disappoint market participants, the benchmark carbon contract found a good support at the 5.00 euro level and increased on two consecutive days. After opening at 5.28 euro on Tuesday, the price increased continuously during the day to hit an intra-day maximum of 5.71 euro. From here the price stabilized and finished the day with a gain of 0.24 euro or 4.5%.
After opening in line with Tuesday’s settlement price the benchmark carbon contract tested both the upside and downside on Wednesday. By the end of the day the price produced a doji candle indicating the indecision of the market participants, if there is further room for a price appreciation. The 20DMA stopped the rally.
The support level at the cross of the 200DMA, the 30DMA and a Fibonacci level was not enough to keep the price from falling on Thursday. The benchmark carbon contract slipped lower continuously during the day hitting an intra-day low at 5.04 euro. By the end of the day the price was not able to recover and closed just 1 cent above the daily minimum. The price cancelled almost all its weekly gains.
The benchmark carbon contract continued its downward trend on Friday, approaching the weekly minimum at 4.92 euro, but the strong German auction reversed the price movement. By the end of the day the EUA Dec17 recovered and closed in line with the settlement price of Thursday and the previous Friday.
The RSI did not leave the neutral territory, but the MACD slipped below zero (a bearish signal).
The main focus of the carbon market participants will be on the four auctions this week (offering more than 17 million allowances, but 5 million less than last week) and on the negotiations about the post-2020 reform of the EU ETS among member state representatives. 
In addition there will be couple of important events this week outside the carbon market, that might have an impact on markets in general and the carbon market might be no exception. 
British PM Theresa May is expected her "big Brexit speech" on Tuesday with the market expecting her more clarity about the terms and conditions the UK prefers when separating from the EU.
On the same day, the European Parliament elects its new president. Considering the conflict between the tow biggest political groups, the election of the new president might have an impact on the ETS legislation process as well.
And last, but not least the new US President will be inaugurated on Friday. Any indication about policy plans of the new administration might have an impact on the financial markets globally.
With the support level at 5.30 euro broken (the 200DMA, the 30DMA and a Fibonacci level being here), the technical picture of the EUA Dec17 chart got gloomier. The next support levels are last week's minimum at 4.92 euro, then at 4.60 euro (a local low from 16 December, when the Christmas rally started) and at the December minimum at 4.01 euro.
In a positive scenario, the former support at 5.30 euro will be the first resistance level.

 Source: Bloomberg L.P., ICE