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

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