Monday, February 27, 2017

EUA Dec17: And the winner is...

Thanks to the rally on the last two days of the previous week, the benchmark carbon contract gained 8.2% in a weekly comparison. With this performance, it was the best performer within the energy mix. German front year power gained 3%, 2018 coal increased by 1.6%, and Brent only advanced by 0.3%.
Supported by higher power prices and a strong auction, the EUA Dec17 stabilized above 5 euro on the first trading day of the week. The price opened at 5 euro exactly and after retesting last Friday’s closing price, it turned higher and climbed to a daily high at 5.15 euro kicking out some shorts. Here the price was stopped by several moving averages, but it managed to remain close to the intra-day maximum. The benchmark carbon contract closed at 5.09 euro, a gain of 11 cents or 2.2%.
After opening at Monday’s settlement level, the benchmark carbon contract slipped to a daily minimum at 5.02 euro, but the strong auction reversed the direction of the price again. Monday’s high at 5.15 euro, however, proved a strong resistance and limited gains. The EUA Dec17 closed at 5.05 euro, a loss of 4 cents or 0.8%. Strong auction results provide only a temporary support to the EUA price which is not able to move away significantly from the 5 euro level.
The benchmark carbon contract was not able to move significantly away from 5 euro. After the weak auction, the price fell below 5 euro, but it recovered in the afternoon when German power price ticked higher and the euro started strengthening (as French centrist Bayrou announced backing Macron).
After opening with a 3 cents gap above Wednesday’s settlement price, the EUA Dec17 slipped briefly to a daily minimum at 5.03 euro, but the higher power prices and the strong auction result lifted the price to strong resistances. After the price broke above the 20, 30 and 200DMAs, some limit orders were triggered an the price hit an intra-day maximum at 5.37 euro, a level not seen since 10 February. The volume traded reached 14.5 million in the benchmark contract only, above the February average of 9.7 million. The price closed at 5.35 euro, above the 200DMA and the declining upper edge of the February triangle.
The EUA Dec17 continued its rally on Friday and hit a new February high at 5.48 euro, 13 cents above Thursday’s settlement price. In the last hour of trading market participants decided to take profit from the two day rally and the price fell back to close at 5.39 euro. This still represents a gain of 4 cents or 0.7% in a daily comparison.
Should the positive momentum from last week continue, the price could test the resistances at 5.58 euro and 5.82 euro (both being local highs). This could happen, if the environment council supports reforms that are similar to those adopted in the European Parliament. Should the member states finalise their report about the reforms, this would open the door for the trialogue negotiations between the three institutions of the EU.
The free allocation, however, might push down the price towards the 200DMA at 5.19 euro. The deadline for the member states to distribute free allowances for 2017 expires on Tuesday. Should most of the industrial installations receive their allowances, their appetite for more EUAs will be dented. In this case, the price might retest the moving averages that represent a support right now. Last year, however, some member states could not distribute the allowances in February, which pushed installations towards the exchange. Should this be the case this year again, it would be supportive for the price and keep it on its current track upwards.

Source: Bloomberg, ICE

Monday, February 20, 2017

EUA Dec17: 5 euro gravity to be tested by high supply

The risk of the plenary vote about the post-2020 reform kept traders away from the carbon market last Monday. The price moved in a narrow range between 5.07 and 5.17 euro for most of the day, but when MEPs started discussing reforms in the afternoon, the price turned sharply lower and fell to an intra-day low at 4.88 euro. The settlement price was just 2 cents higher. Monday’s black candle followed a bearish engulfing from the previous week and pushed the MACD below the signal curve.
The benchmark carbon contract consolidated below 5 euro on Tuesday, before the key vote in the plenary of the European Parliament about the reform of the ETS. The price dipped to an intra-day low at 4.93 euro, but managed to remain above Monday’s minimum. Due to short covering and buying interest below 5 euro,  the price started rallying in the last hour of trading and finished at 5.13 euro, a daily gain of 4.7%.
Despite the volatility before and after the vote in the plenary, the EUA Dec17 remained relatively stable on Wednesday. As the outcome was a good compromise of the amendments, the price stabilized near 5 euro after the vote. On the positive side, the 20DMA climbed above the 30DMA. 
The day after the vote in the Parliament plenary about the reform of the EU ETS the benchmark carbon contract remained stable, near the 5 euro level. The price traded roughly 10 cents below and 10 cents above this level. By the end of the day, however it fell below 5 euro and closed at 4.94 euro (-2.6%).
Friday started with a new weekly low in the carbon market, but despite a weak auction the bulls invaded the trading floor in the afternoon and lifted the price above 5 euro again. By the end of the day, the price was not able to keep its gains and finished again below 5 euro. Friday’s doji is a signal that the fight between buyers and sellers has not been decided yet.
The last week was characterised by a price converging towards the 5 euro level. In the lack of any major events expected, this might be the case this week as well.
The high supply this week (five auctions and last week for 2017 free allocation to be distributed) and the fact that the price fell below the lower edge of the wedge, increase the chances for more trades below 5 euro.

Source: Bloomberg, ICE

Monday, February 13, 2017

EUA Dec17: Uncertainty about plenary vote pushed down the carbon price

Despite slipping to 5.06 euro in the first hours of trading on Monday, the EUA Dec17 recovered after the strong auction and consolidated around 5.13 euro. The benchmark carbon contract closed at the lower edge of the daily range.
EUA prices edged slightly higher on Tuesday, but the traded volume remained below the monthly average. The EUA Dec17 started the day range-bound but moved upward after the auction results were published. The contract closed the session at 5.17 euro, up 0.07 euro from the previous close.
The benchmark contract touched slightly higher on Wednesday, supported by the wider energy markets. The bellwether contract traded on both sides of the previous close with an attempt to break above 5.28 euro, the intraday high, in late trading before coming back down to close the day at 5.22 euro, up 0.05 euro day on day.
The price rose on Thursday for the third consecutive day, lifted by German power and coal prices and came as high, and hit the intraday high at 5.44 euro, but prices fell from there to close the day 0.06 higher than the previous close.
The price had an ambitious start on Friday opening 3 cents above Thursday’s settlement price. Despite trying to climb higher, the previous day’s maximum at 5.44 euro could not be reached, because the price turned lower as the market started questioning the outcome of the vote of the plenary of the European Parliament about the reform of the EU ETS. The price fell below the 20DMA and closed at 5.12 euro. It dragged also the 30DMA to the 200DMA which is a bearish signal.

The price closed the week below the most important moving averages. In addition, the last two candles of the chart form a bearish engulfing which does not bode well for price increases this week. Depending on the outcome of the plenary vote about the ETS reform on Wednesday, the price could either fall below the 5 euro level and retest the January low at 4.60 euro or in a positive scenario, it could turn higher and after breaking the resistance of the moving averages, it could retest the 5.60 euro level.

Source: Bloomberg, ICE

Monday, February 6, 2017

EUA Dec17: Moving in a narrowing triangle

After opening with a 3 cents gap up, the EUA Dec17 climbed higher continuously last Monday. The price hit an intra-day maximum at 5.21 euro (just one cent below last Friday’s maximum). The CO2 price received support from higher power prices (due to strikes of utility workers in France) and expensive gas, which made coal more appealing for utilities. By the end of the day, however, the price was not able to maintain all of its gains and closed at 5.17 euro, but this still represented a gain of 25 cents (+5.1%).
Thanks to the continued support from higher power prices, the benchmark carbon contract increased in Tuesday’s trading. It managed to break the resistance at 5.30 euro and hit an intra-day maximum at 5.39 euro. The price kept its gains until the last minute of trading and finished at 5.36 euro, a gain of 3.7%. This was the first time in 6 days that the price was able to close above the 200DMA and the MACD crossed the signal curve, which was a positive sign.
The EUA Dec17 had a volatile day on Wednesday. It opened 4 cents above Tuesday’s settlement price and jumped to a daily maximum of 5.47 euro, but by the end of the day it fell back to close with a loss of 8 cents (-1.5% d/d). The close below the 200DMA suggested that Tuesday's strength was only temporary.
Although the EUA Dec17 opened 4 cents above Wednesday’s settlement price, it slipped quickly to 5.21 euro Thursday morning. The price then briefly touched 5.37 euro during the day, but returned to its daily minimum by the end of the day.
Despite the strong German auction on Friday the price was not able to climb higher and fell below the 20DMA to close at 5.16 euro and with a loss of 1.3%.
Thanks to the gains in the first two days of the week, the CO2 price closed 4.9% higher in a weekly comparison.
The intra-day range declined continuously since 26 January from 35 cents to 12 cents. This means that the price moves in a narrowing triangle. (See the chart below.) Traded volume in the benchmark contract was also declining day by day. Last Monday 13.3 million allowances traded compared to the 7.6 million on Friday, 3 February.
The technical signals are mixed. The 20DMA is below the 200DMA (bearish), but the MACD (although still below zero) crossed the signal curve (bullish). The relative strength index is in the neutral territory.
Speculation on the outcome of the vote in the plenary of the European Parliament might pull the price from the triangle. The price direction will depend on which amendments the market perceives most likely to be adopted. The more ambitious ones or those that are in line with the original proposal of the European Commission.

Source: Bloomberg, ICE