Monday, April 10, 2017

EUA Dec17: Technical indicators provide mixed signals

The EUA Dec17 had a positive start to the week on Monday. It opened 6 cents above the previous Friday’s settlement price, but retreated before the publication of the 2016 verified emissions data. As the data suggested at first sight that the emissions increased from 2015, the price jumped to a daily maximum of 4.91 euro. Later on, however, the market realized that there was a French installation that most probably reported erroneous data without which emissions declined by the expected extent. As a consequence, the price turned lower and consolidated around the 4.75 level in the afternoon, but bulls lifted the price higher in the last hour of trading again. As a consequence, the EUA Dec17 finished at 4.87 euro (+3.8%).
The EUA Dec17 traded in a 10 cents range during most of Tuesday, but the last hour of trading woke up bears, who pushed the price down to 4.66 euro. The price closed at the lower edge of the daily range, at 4.65 euro, a loss of 4.7%. This way all the gains from Monday afternoon have been cancelled and the price got close to the support level at 4.60 euro.
The EUA Dec17 opened with an 8 cents gap up from Tuesday’s settlement price, but filled in the gap quickly, in the first hour of trading already. Higher power and oil prices, and a strong UK auction lifted the price to a daily maximum at 4.93 euro. Profit taking started in the last hour of trading and pushed the price back to 4.82 euro.
A strong energy mix, compliance purchases and short covering lifted the benchmark carbon contract on Thursday. After opening at 4.82 euro in the morning, the price climbed continuously higher during the day. The break of the resistance level at 4.95 euro accelerated the price appreciation, as many traders closed their short positions. The price climbed above the 20DMA and hit a daily maximum of 5.14 euro, a level last seen 20 March. The rally was halted by the 200 and 30DMAs. By the end of the day the EUA Dec17 gave back some of its gains, but it still managed to close above 5 euro, and finish 5% above Wednesday’s settlement price. The rally lifted the MACD above the signal curve, which is a positive signal. In addition the price rose above the declining trend line of March.
In the first half of Friday, the EUA Dec17 hit a new local high at 5.19 euro, but shortly later profit taking started which accelerated towards the end of the day pushing down the market to 4.87 euro. The price finished at the lower edge of the intra-day range, at 4.89 euro and fell back below key levels like the 5 euro level and the 20DMA.
Despite the sell-off Friday afternoon, the price closed 4.3% higher in a weekly comparison.

The technical indicators provide mixed signals for this week. The relative strength index is in neutral territory (48). The MACD is below zero, but due to the rally last Wednesday and Thursday, it has been lifted above the signal curve which can be considered as a positive sign. 
On the other hand, the fact that the price was not able to remain above 5 euro and fell below the 20DMA last Friday put question marks to the strength of the price. In addition, the 30DMA fell below the 200DMA, also a negative signal.

Compliance demand and the lack of the German auction on Friday (Good Friday is a bank holiday) might provide stability to the CO2 price this week, but low electricity demand due to the holiday season can put a cap on potential gains. 

We therefore expect the price to consolidate in the range of 4.60 (March low and lower Bollinger band) and 5.30 (a Fibonacci level) euro this week.



Source: Bloomberg, ICE

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