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

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