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


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