Monday, April 3, 2017

EUA Dec17: 4.60 euro was key support before the publication of the verified emissions data

The benchmark carbon contract finished last week 1.7% lower as traders took profit before the publication of the 2016 verified emissions data and cancelled three days of gains. The relative strength index has been pushed below 40 and the MACD deeper into negative territory.
On the first trading day of the last week, the EUA Dec17 extended its losses and hit a new 2017 low at 4.58 euro. The price fell below the previous 2017 minimum at 4.62 euro during the day, but managed to climb back one cent above this level by the end of the day. The decline pushed the MACD deeper into the negative territory, and the RSI close to 30.
The benchmark carbon contract started on Tuesday at 4.62 euro and increased continuously during the day. It hit a daily maximum at 4.82 euro, but fell back in the afternoon to close at 4.74 euro (+11 cents of 2.4%).
The carbon market received positive signals Wednesday morning, but there were significant risk factors (Brexit, Polish auction) that made traders cautious in the morning. After the surprisingly strong Polish auction, however, the price rallied to the resistance level at 4.84 euro, but it was not able to maintain its gains until the market closed. As a consequence, the EUA Dec17 closed flat to Tuesday’s settlement.
The 5 cents gap from Thursday morning was quickly filled as the price fell from the 4.81 euro opening price to a daily minimum of 4.64 euro. A strong energy mix, a revised US GDP and short covering made the price rally in the afternoon to 4.98 euro, a level last seen a week ago. The price closed at 4.92 euro, a gain of 3.4%, but the 20DMA fell below the 200DMA which is a bearish signal.
The benchmark carbon contract was relatively stable almost the whole Friday long (trading between 4.91 and 4.95 euro), but bears invaded the trading floor in the last hour of trading to reduce their positions before the publication of the 2016 verified emissions data on Monday. The price fell steeply 4.86 euro to a daily minimum of 4.67 euro.
The direction the EUA Dec17 will take this week will be defined by the 2016 verified emissions data. If emissions declined more than expected by the market (a decline of 2-4% from 2015 levels), the price might fall below the support level at 4.60 euro. If emissions only fell by a smaller extent than the linear reduction factor of 1.74%, it means that the oversupply did not increase further. This might support the price and pull it towards 5 euro.



Source: Bloomberg, ICE

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