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

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