Monday, May 29, 2017

EUA Dec17: Lack of auctions and higher power prices lifted the price above 5 euro

With only three auctions and the German front year power price climbing back above 30 EUR / MWh, the benchmark carbon contract was able to climb above 5 euro again.
The EUA Dec17 opened with a 6 cents gap up on the first trading day of the week. The strong auction lifted the price to a new 1-month high at 5.00 euro in the afternoon. After retreating from the daily maximum, the price closed at 4.91 euro, forming a doji candle that signals indecision of the market which direction to take.
After Monday’s doji candle, the EUA Dec17 opened with a 4 cents gap down on Tuesday, but it was able to hit a daily maximum at 4.96 euro during the day. An attempt to break above the 5.00 euro level, however, failed. In the last two hours of trading bears invaded the trading floor and pushed the price sharply lower. The benchmark contract fell to a daily minimum at 4.72 euro and was not able to recover by the time the market closed. It settled at 4.75 euro, a loss of 3.3% in a daily comparison. The traded volume of 18.3 million in the Dec17 contract was the highest since the last trading day of April (the compliance deadline). Despite the negative day, the MACD has been lifted above the zero line which is a bullish signal.
The benchmark carbon contract opened flat on Wednesday, and slipped just one cent down, before it started rallying towards 5 euro again. The price hit an intra-day maximum at 4.94 euro, and remained above 4.90 euro until the market closed (+3.2%).
Supported by the lack of auctions, EU carbon allowances rose for the 7th time in 8 days on Thursday, trading near the 1-month high reached earlier last week. After some initial hesitation, the price climbed continuously higher to hit the 5.00 euro level for the second time after Monday. Gains were kept until the last minutes of trade and the benchmark carbon contract closed at 4.98 euro, a gain of 1.4% in a daily comparison. The volume, however, was extremely low at 5.6 million compared to the 11-18 million in the three first trading days of the week due to a public holiday in many European countries.
After a strong opening the price did not hesitate long and it climbed to reach a new monthly high at 5.19 euro (last seen 7 April) on Friday. The price broke above the 200DMA at 5.08 euro as well. The contract settled at the daily maximum, with a gain of 19 cents or 4.2% from Thursday’s settlement price. 
In the last two weeks, when the price left the declining trend channel and the MACD climbed above the zero line, the technical picture got rosier. 
The two warning signals are, however, that the price trades above the upper Bollinger band and the relative strength index is approaching the overbought territory. 
In addition, auction supply increases by 29% in a weekly comparison and the dark spread also turned lower last week.
We therefore have a balanced view on the price and expect the EUA Dec17 to move between 4.70 and 5.45 euro this week.

Source: Bloomberg, ICE

Monday, May 22, 2017

EUA Dec17: Breaking out from the declining trend channel

With the exception of Monday, the benchmark carbon contract managed to increased every day last week. The rally lifted the price above the short term declining trend channel.
The benchmark carbon contract opened 2 cents above the previous Friday’s settlement price on Monday, but was only able to rise an additional 2 cents to a daily maximum at 4.50 euro. The price then spent most of the day around these levels before turning sharply lower in the last hour of trading. Sellers pushed the price down by 10 cents in the final 60 minutes to close at 4.39 euro, down 1.6% from Friday.
Supported by positive market mood in the morning, the EUA Dec17 opened 3 cents above Monday’s settlement price on Tuesday. Then it fell to 4.34 euro, but a strong auction helped the price breaking the resistance at 4.50 euro. After hitting a daily maximum at 4.57 euro, the price settled at 4.54 euro, a gain of 3.4% in a daily comparison. The price finished the day above the 20DMA and close to the higher edge of the short term declining trend channel.
On Wednesday, the EUA Dec17 opened with a 2 cents gap above Tuesday’s settlement price, but fell to a daily minimum at 4.49 euro in the morning hours. A healthy UK auction, higher power prices and the reversing oil price, however, helped the carbon price to turn higher as well. Buyers lifted the price above the Fibonacci level at 4.60 euro, but the 30DMA at 4.65 euro could not be broken. The benchmark carbon contract finished the day at 4.58 euro, a gain of 4 cents (0.9%). The price closed above April’s declining trend channel. In the last two trading days, when the price managed to increase, the traded volume rose above 10 million again which is a positive signal.
The benchmark carbon contract maintained its momentum and increased further on Thursday. The price opened with a gap up, which was closed in the morning hours already. Helped by higher oil and power prices, and the strong auction, the benchmark carbon contract increased step by step to reach a daily maximum at 4.82 euro, a level not seen since 20 April. Although the price retreated in the last minutes of trading, it closed with a gain of 3.9%. The price remained above the short term declining trend channel and it also closed above the 30DMA which is a positive sign.
Although the fast rally on the previous two days lifted the price above the upper Bollinger band which increased the likelihood of a correction (profit taking) on Friday, the EUA Dec17 continued rallying on Friday, hitting 4.92 euro and closing the day with a gain of 1.9%.
Last week’s rally improved the technical picture of the EUA Dec17 significantly, as the price broke from the short-term declining trend channel. The MACD approached the zero line, while the relative strength index (at 59) still leaves room for further appreciation.
The auctioned volume declines by 38% this week as there will be only three auctions due to public holidays in Germany. 
The lower auction supply coupled with the supportive energy mix (oil rallied on expectations the OPEC would extend and deepen the production reduction agreement this week, the German dark spread jumping above 2 EUR/MWh) will support the price of the EUA Dec17 this week. Should the price increase further, the first resistance is the 5.00 euro level, followed by the 200DMA at 5.08 euro.
On the other hand, the price jumped above the upper Bollinger band (at 4.85 euro) last week which increases the likelihood of a correction this week. In the case of a decline, the first support would be the 30DMA at 4.64 euro.
Volatility and traded volume might be impacted by the fact that the Innovate4Climate conference starts on Monday, 22 May. 

All in all, we expect the price to move between 4.50 and 5.20 euro this week.

Source: Bloomberg, ICE

Monday, May 15, 2017

EUA Dec17: Slipping lower slowly

Despite opening 2 cents above last Friday’s settlement price, the EUA Dec17 turned lower already Monday morning. The weak auction result and the low prices in the wider energy mix depressed the price further in the afternoon. By the end of the day the price fell to a daily minimum at 4.41 euro, and was not able to recover. The settlement price was just one cent higher and below last Friday’s minimum and the two last candles formed a bearish engulfing, a negative signal.
The benchmark carbon contract had one of its most boring days on Tuesday. At least, until the last hour of trading. The price moved in a narrow range of 5 cents until the final hour, when buyers hurried to lift the price to 4.58 euro and expand the daily range to 19 cents. The price settled 10 cents (+2.3%) above Monday’s closing price. The move surprised markets as the two previous candles formed a bearish engulfing. The traded volume, however, remained at the levels seen on Monday (below 10 million allowances).
The benchmark carbon contract seemed to continue the positive momentum Wednesday morning, but the steam has been lost during the day. The price opened 1 cent above Tuesday’s settlement price and hit a daily maximum at 4.57 euro, but could not climb any further. In the last hour of the trading session the price turned sharply lower and hit a daily minimum at 4.42 euro. The EUA Dec17 finished the day with a loss of 7 cents (-1.5% d/d).
Although the German dark spread approached its highest level in 2017, the EUA Dec17 was testing with its yearly minimum on Thursday. Despite opening with a gap up in the morning, the benchmark carbon price turned lower after the weak auction result. It fell to a daily minimum of 4.31 euro, just 1 cent above the 2017 minimum. The price finished the day at 4.35 euro, a loss of 2.2% in a daily comparison.
Thursday’s losses have been reversed on Friday. After opening at Thursday’s settlement price, the benchmark carbon contract turned lower pushed down by a weak auction result. It even hit a new 2017 low at 4.29 euro. In the afternoon, however, bulls took over the trading floor and lifted the price to a daily maximum at 4.47 euro. Gains were kept until the last minute of trading and the price closed 11 cents higher.
The technical indicators provide a neutral signal. The relative strength index is in the neutral territory, the MACD moves sideways below the zero line and the signal curve. The price slips lower every week, Although the change is not dramatic, the trend is downwards and the possibility of the price slipping to a new 2017 minimum cannot be ruled out.
In the five auctions this week supply will decline slightly by 2.7%, but it still remains a question who shows interest for the allowances. The cover ratio of Friday's German auction (1.43) was the lowest since 20 September 2016.
The discrepancy between the German dark spread and the CO2 price also raises questions about the upside potential of carbon. While the first one is approaching 2017 highs, the latter is hitting new 2017 minimums always every day.

 Source: Bloomberg, ICE

Monday, May 8, 2017

EUA Dec17: Macron and the improved dark spread to counterbalance the abundant supply

May's short first week started in a negative tone as the price hit a new 2017 minimum on Tuesday, on Wednesday and on Thursday as well, before turning higher again on the last trading day of the week.
The EUA Dec17 traded in a narrow range of 7 cents for most of Tuesday, but bears pushed the price to a new 2017 low in the afternoon. The price fell to 4.37 euro, 8 cents below the previous minimum. The traded volume got only close to 10 million when stop-loss orders were triggered at 4.45 euro.
Lack of demand pushed the price of the benchmark contract to a new 2017 low at 4.34 euro on Wednesday.
Despite hitting a new 2017 low at 4.30 euro in the morning hours, the EUA Dec17 climbed back above 4.50 euro late in the afternoon on Thursday. The strength was even more surprising as the German front year power traded near its intra-day minimum and the Brent plummeted by 5%. Although the contract was not able to keep all its gains, it closed above the 4.50 euro level representing an increase of 2.7% in a daily comparison.
The bulls took over the trading floor on Friday again. After opening at Thursday’s settlement price of 4.52 euro, the price hesitated a little in the morning hours and fell to an intra-day minimum at 4.45 euro. The strong German auction, however reversed the price direction and the contract reached quickly 4.70 euro. The contract was not able to maintain all its gains until the end of the session, but it still closed 6 cents above Thursday's settlement price.
Thanks to the rally since Thursday afternoon, the price approached the moving averages near 4.70 euro. Should the price be able to break these resistances, it would approach the upper end of the declining trend channel that has been established since the second week of April. 
The price could receive support this week from the EUphoria after the French presidential elections, where centrist and pro-EU Emmanuel Macron received more than 60% of the votes on Sunday. From the fundamental side, the improving dark spread could also attract some utilities to the carbon market this week.
On the other hand, the abundant supply might keep a cap on potential gains, as in five auctions more than 22 million allowances will be offered, an increase of 28% in a weekly comparison.
In a negative scenario, the new 2017 low at 4.30 euro will be the first strong support.
The technical indicators do not point into any direction. the relative strength index is comfortable in the neutral territory (at 45). The MACD is below the zero line and also below the signal curve. 

Source: Bloomberg, ICE

Tuesday, May 2, 2017

EUA Dec17: New 2017 low hit in the last week of compliance

Although the price fell to a daily minimum of 4.57 euro Monday morning, the positive market mood after the French elections lifted the benchmark carbon contract above the 2017 low (4.56 euro) hit the Friday before. A good auction helped the price reaching 4.74 euro during the day, the level from which the price started declining on Friday. The intra-day gains, however, could not be kept amid falling power prices and the price closed the day with a marginal gain of 1.5%, at 4.64 euro.
Low power prices and the high supply of allowances pushed the price of the EUA Dec17 to a new four month low on Tuesday. The price was stable in the first half of the day, but bears invaded the trading floor in the afternoon and pushed the price down to 4.45 euro. Almost 19 million allowances traded in the benchmark contract, meaning that the negative sentiment was confirmed by a high volume. (The average daily volume in April was 11.6 million.) By the end of the day the benchmark carbon contract could only return to 4.50 euro. The sell-off pushed the RSI close to oversold territory, the MACD below the signal curve and the price below the lower Bollinger band.
The EUA Dec17 consolidated above the 2017 minimum on Wednesday. The price opened at 4.54 euro, 4 cents above Tuesday’s settlement price, but the gap was closed quickly when the price fell to an intraday minimum at 4.47 euro. The afternoon brought buyers to the market resulting in an intra-day maximum of 4.65 euro. This was the level, the sharp decline started from on Tuesday. The price then closed 11 cents higher, a gain of 2.4%. The traded volume of 12.8 million allowances was in line with the April average, but remained below Tuesday’s 19 million.
Despite opening 2 cents below Wednesday’s settlement price, the benchmark carbon consolidated between 4.56 and 4.65 euro during most of Thursday’s session. In the last minutes of trading, however, sellers pushed the price down again. The closing price of 4.55 euro represented a loss of 6 cents or 1.3% from Wednesday. The traded volume fell further and did not reach even the 10 million.
The traded range narrowed further on Friday, when the price moved between 4.53 and 4.60 euro. The price stabilized in the middle of the range, to close unchanged in a weekly comparison.
Positive and negative factors impacting the carbon market might be in balance this week.
On the negative side, after the compliance deadline it might turn more difficult for the auctioned allowances to be absorbed. The auctions of last week had already a weaker result than those in the first half of April.
Oil and gas prices were falling hand in hand in the last week of April. Market got sceptical if an extension of the agreement between OPEC and non-OPEC countries can deliver higher oil prices if the countries not participating in the agreement (for example the US and Libya) increase their production levels. Gas prices followed oil lower, while demand was also dented by forecasts about milder temperatures.
Investors might also chose staying at the sidelines of the market before the second (and final) round of the French presidential elections, as the support for Mr. Macron declined slightly below 60% in the second half of last week.
On the other hand, the price trades close to the lower edge of the March-April range, next to the lower Bollinger band. This might result in a consolidation or correction of the price this week.
All in all, we remain neutral for this week and expect the price to trade between 4.00 and 5.00 euro.

Source: Bloomberg, ICE