Monday, July 3, 2017

EUA Dec17: Consolidation near the 5 euro level expected

The benchmark carbon contract got support from strong auctions and higher power prices last week. As a consequence, it climbed back above 5 euro and gained 3.3% in a weekly comparison. 
After a flat opening Monday morning, the EUA Dec17 was able to climb two cents higher to a daily maximum at 4.89 euro, but then the price fell continuously during the day. Power prices got under pressure by the energy efficiency targets adopted by the representatives of the EU member states and the carbon price followed power down. The benchmark carbon contract hit a new monthly low at 4.77 euro, and was not able to recover by the end of the day. The price settled at 4.78 euro, just one cent above the daily (monthly) minimum. In the last four trading days the price hit a new local minimum every day, setting the start of a declining trend. The last two candles formed a bearish engulfing, another technical signal warning of further possible sell-off.

Despite the negative signals from Monday, the strong auction result (with the highest cover ratio since 22 May) and the good performance of the energy mix lifted the price of the EUA Dec17 3.3% higher on Tuesday. Market mood was positive already in the morning. As a result, the contract opened with a 6 cents gap that was not filled completely during the day. The two cents gap left between 4.78 euro (Monday’ settlement) and 4.80 euro (Tuesday’s minimum) will work as support in the next days. The price climbed back to 4.99 euro, but returned below the 20 and 30DMAs by the end of the day.
On Wednesday, the benchmark carbon contract moved in a narrow range of 10 cents between 4.88 and 4.98 euro. After the strong start in the morning the price moved sideways during the day and sellers pushed the price to the daily minimum, but then the contract was able to recover. The price closed at Tuesday’s settlement price at 4.94 euro. The traded volume of 7 million is in line with the June average. The sideway movement was not enough for the 20DMA to stay above the 30DMA which adds to the other bearish signals the chart provided recently.
Wednesday’s positive sentiment lifted the price of the EUA Dec17 further Thursday morning. The price climbed above the 5 euro level already in the first hour of trading and rallied higher during the day. It almost reached the 200DMA, but turned back lower from that resistance to close at 5.07 euro, a gain of 2.6%. The price opened and closed above the 20 and 30DMAs and it also settled above the 5 euro level. Thursday’s candle was the first one that closed outside the short term declining trend channel.
The price was not able to climb any further on Friday, but remained above the 5 euro level despite finishing the day with a  loss of 0.8%.
The chart of the EUA Dec17 provides mixed signals right now. 
On the positive / neutral side, the MACD did not slip below the zero line due to the positive days last week. The price even climbed above the short term declining trend channel that has been established in June. The relative strength index is in neutral territory (at 55).
On the other hand, the price found a strong resistance at the 200DMA at 5.16 euro and the upper Bollinger band at 5.13 euro. The 20DMA slipping below the 30DMA is another bearish signal.
Trading activity might be dented in the first two days of the week, due to the US bank holiday on Tuesday (Independence Day).
There will be five auctions this week, offering 22.1 million allowances slightly (+2.3% w/w) compared to last week. If auctions continue well bid, like we saw last week, they might support the price again.
All in all, we expect the price of the EUA Dec17 to move around 5 euro, between 4.70 and 5.30 euro this week.


Source: Bloomberg, ICE

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