Monday, March 13, 2017

EUA Dec17: Four black candles pushed price back to 5 euro

The benchmark carbon contract produced four black candles last week and the last, white candle is also very tiny. The price returned to pre-Council meeting levels and fell below key support levels.
On the first day of the week the benchmark carbon contract consolidated above 5.50 euro. After opening at 5.55 euro, 5 cents below last Friday’s settlement price, it hit a new intra-day high at 5.59 euro (a local high from January). The EUA auction failed to show direction to the price, but energy fundamentals were rather bearish and Commission data showed that more than half of the 2017 free allowances have been distributed. As a consequence, the EUA Dec17 turned lower and finished the day at 5.49 euro, a loss of 2.00% or 11 cent.
The benchmark carbon contract remained stable for most of the day on Tuesday, but the last hour of trading brought sellers to the market who pushed the price to a new 4-day low.
Low gas prices (at 3-month low), high supply of allowances (free allocation and auctions) pushed the price of the EUA Dec17 further down on Wednesday. The price of the benchmark carbon contract returned to the pre-Council levels and to the 20DMA.
Thursday started in a negative mood for the EUA Dec17 again. The price fell steeply already in the first hour of trading and hit a new March low at 5.08 euro. There was no recovery by the end of the day and the price lost 11 cents of 2.1% in a daily comparison. The price fell below the key moving averages which will work as resistances in the future. In addition, the positive signal from the MACD was short lived. On Thursday it slipped below the signal curve warning about further possible losses.
On the last day of the week, we could see a small correction in the carbon price. After a surprisingly strong auction the benchmark carbon contract closed the day with a gain of 4 cents.
It seems that the positive momentum seen after the Council meeting is vanishing. The daily price range is narrowing again, just like we saw it before the Council meeting. In the lack of special carbon market events we expect the price to consolidate near the current levels. The first support might be the local low at 4.85 euro, followed by the 2017 minimum at 4.62 euro. Beside low prices in the energy mix (power, oil and gas) some important macro events might also have a negative impact on markets globally and the carbon market might be also affected. The US Federal Reserve is expected to raise interest rates by 25 basis points at its meeting on Wednesday. In addition, there is a chance that the British Prime Minister triggers Article 50 this week, starting officially the Brexit process.
On the other hand, levels near 5 euro are already appealing enough for many market participants to place their bids there. To the upside, the moving averages that represented a support two weeks ago, are now the first resistances.



 Source: Bloomberg, ICE

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