The benchmark contract declined by an additional 2.3% last week.
On Monday when there were no EUA auctions, the EUA Dec17 hit a new 3-month high at 5.8 euro. The traded volume of 5.3 million allowances, however was well below the daily average for May because of a public holiday in many European countries.
The EUA Dec17 opened flat on Tuesday and remained relatively stable in the morning. The weak energy mix, however, pushed the benchmark carbon contract lower in the afternoon. The decline accelerated when the price fell below the 200DMA first, and then below the 5.00 euro level. The price hit a daily minimum at 4.93 euro, and was not able to recover by the end of the day. The contract settled at 4.97 euro, a loss of 20 cents (-3.9% d/d).
Although the benchmark carbon contract opened flat on Wednesday, it closed the day with a loss of 1.8%. In the morning the price still tried to climb back above 5 euro and reached a daily maximum at 5.04 euro, but the unexpected increase in the US crude oil inventories that pushed down oil and gas prices had a negative effect on the carbon price as well. It fell to a daily minimum of 4.87 euro, and was not able to recover by the end of the day. The closing price at 4.88 euro was the lowest since 23 May.
Starting from the 20DMA, the EUA Dec17 opened with a 2 cents gap up on Thursday and the gap has not been filled during the day which means that it will serve as a support. Thanks to the strong auction and the rally in German power prices the price broke above the 5.00 euro level and did not stop until 5.18 euro. The contract was not able to keep all its gains and closed at 5.05 euro, 3.5% above Wednesday’s settlement price.
The CO2 price moved in a narrow range of 10 cents on Friday. After opening at 5.05 euro, the price slipped 5 cents down, then climbed back and increased 5 cents. By the end of the day it returned to its opening level, producing a doji candle, a sign of uncertainty.
Most of the technical indicators suggest a consolidation to be expected in the next days. The relative strength index is at 53, and the allowances trade near the mid-Bollinger band. The lack of auction son Thursday (bank holiday in Germany) and on Friday (bridging) might support the price this week.
The MACD, however, slipped below the signal curve on Friday, warning about the weakness of the price.
All in all, we expect the price of allowances to consolidate near the 5 euro level this week.
Supports are seen at 4.96 euro (20DMA), at 4.95 euro (a Fibonacci level) and at 4.85 euro (lical low from February).
The first resistance is the 200DMA at 5.10 euro, followed by a Fibonacci level at 5.15 euro and the June high at 5.28 euro.
Source: Bloomberg, ICE