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

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