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



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