Monday, June 26, 2017

EUA Dec17: Market expects progress in trilogue on Tuesday

Although the supply of allowances increased by more than 70% in a weekly comparison, the benchmark carbon contract only hit a new monthly low at 4.83 euro last week, but it finished with just a marginal loss of 0.20%.
As the season of daily auctions restarted, the EUA Dec17 fell to a daily minimum at 4.85 euro on Monday, a level not seen since 24 May. The carbon market had a negative start to the day, but recovered later during the day as the energy mix turned green and the cover ratio of the auction was above the June average. In a spectacular rally in the afternoon the price hit an intraday maximum at 5.01 euro, but was not able to stay above the 5 euro level. Due to the sell-off in the last 10 minutes of trading the price fell to 4.93 euro. The benchmark contract still finished the day with a gain of 5 cents (1.0%). The traded volume was above 10 million, for the first time since last Monday.
After a positive start the EUA Dec17 climbed continuously until early afternoon on Tuesday. The price hit an intraday high at 5.05 euro, before falling back below the 5.00 euro level. The Fibonacci level at 4.90 euro proved a good support and the price turned higher before the end of trading too. The closing price of 4.95 euro represents a daily gains of 2 cents (+0.4% d/d).
The EUA Dec17 had a weak start to Wednesday opening with a 6 cents gap down. The price was still able to jump to a daily maximum at 5.01 euro in the morning, but after a hesitation around 4.99/5.00 euro the price turned lower in the afternoon. Pressured by a weak energy mix, the benchmark carbon contract fell to a daily low of 4.87 euro in the last minutes of trading and was not able to recover by the end of the day. The price closed at 4.88 euro, a loss of 7 cents or 1.4%. The trading volume, on the other hand, was the highest this week as yesterday was the expiry day of the June options.
The benchmark carbon contract moved sideway in a narrow range before Thursday’s auction, but after the auction cleared with an above average discount, to the price well to a new weekly low at 4.83 euro, a level not seen since 24 May. By the end of the day the price only could climb 3 cents higher, losing 2 cents in a daily comparison.
The daily trading range shrank further to 8 cents on Friday. After opening one cent below Thursday’s settlement price the previous daily maximum t 4,93 euro was retested, but only 1 cent could be kept from the gains.
The price slips slowly lower, it fell already below the most important moving averages and gets away from the 5 euro level. Although most of the technical indicators are not providing any special signal (the MACD still above the zero line and the relative strength index at 48), the Bollinger bands are narrowing, but other technical indicators do not provide any new technical signal. 
The auction supply decreases a little bit this week as the UK auction on Wednesday offers some 0.6 million EUAs less than the Polish auction last Wednesday. 
Market participants will also keep an eye on the second trilogue meeting on Tuesday. Since the European Parliament and the Council adopted their official positions about the reform  of the EU ETS in February, practically nothing happened to the file. The first trilogue in April did not bring any results and the second meeting end of May was cancelled. 
The meeting on Tuesday will be the first "test" of the ambitiousness of the new rapporteur of the file, Julie Girling. Any progress on the file could have a positive effect on the EUA price as market participants would like to see future uncertainties about the market eliminated as soon as possible.
Due to the above we expect the benchmark carbon contract to move between 4.67 euro (a Fibonacci level and also a support in January and in spring) and the 5.00 euro levels.




Source: Bloomberg, ICE

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