Monday, March 20, 2017

EUA Dec17: Consolidation around the 200-day moving average

The benchmark carbon contract moved in a narrow range between 5.09 and 5.25 euro last week, but could not get away from the 200DMA (now at 5.13 euro).
After opening 1 cent below previous Friday’s closing level, the EUA Dec17 fell to a daily minimum at 5.09 euro last Monday. By the end of the day, however, it managed to recover and closed at 5.16 euro, a loss of just 0.2%. The price moved in a narrow range of 10 cents during the day. It left a doji candle indicating uncertainty of market participants.
The benchmark contract opened with a 2 cents gap up on Tuesday. The price jumped to a daily high at 5.23 euro in the morning, but moved in a narrow range of 14 cents later during the day. Although it touched Monday’s low at 5.09 euro, it did not hit a new local minimum. The price settled at 5.11 euro, 5 cents below Monday’s close (-1.0%). The loss pushed the MACD into negative territory which is a negative signal.
After testing the support level at 5.09 euro for the third time, the lack of auctions and the higher power prices helped the EUA Dec17 to climb to the 20DMA on Wednesday. The price reached a daily maximum at 5.25 euro and finished the day just 5 cents lower (+1.8% d/d). The traded volume of 8.2 million, however, remained below the February average of 10.4 million.
The benchmark carbon contract moved between the same daily minimum and maximum levels on Thursday than it did on Wednesday. Interestingly, the 5.09 euro level kept the price from falling for the fourth day already. After Wednesday’s white candle, however, a black one followed on Thursday. The price lost 5 cents (-1.0%) by the end of the day.
On Friday, the price moved in an even narrower range of 5.10 and 5.20 euro, to finish at the lower edge of the range, at 5.14 euro.
The price consolidates at the 200DMA and most of the technical signals do not point into a certain direction. The RSI is in a neutral territory (at 47) and the price moves between the two Bollinger bands. The only exception is the MACD that slipped below the zero line last week providing a bearish signal.
Fundamentals are also rather pointing downwards:
There will be five auctions this week, increasing the supply of allowances by more than 4 million in a weekly comparison. Most of the installations are covered for 2016 (meaning low compliance demand), while mild temperatures and cheap gas might dent the appetite of utilities as well. This might result in weak auction results this week.
All in all, we see more signals pointing downwards, but price levels around 5 euro are appealing enough for many companies to purchase allowances for future years when they might face higher prices due to the reform of the EU ETS. Our base range for this week is between 4.85 and 5.49 euro.


Source: Bloomberg, ICE


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