Monday, July 17, 2017

EUA Dec17: New 4-month high reached last week

The benchmark carbon contract hit a new 4-month high and gained 1.5% last week helped by stronger fundamentals.
The EUA Dec17 opened the week with a 6 cents gap up that was not filled completely on Monday. The price of allowances increased continuously in tandem with the price of German power. When latter hit a new 2-year high at 32 euro per MWh, the price of carbon reached 5.56 euro, a level not seen since March. When power prices started weakening in the afternoon, the EUA Dec17 also turned lower. It hit a daily minimum at 5.35 euro and finished the day with a marginal gain of 1.1% at 5.40 euro. Monday’s candle is a shooting star (long upper shadow, short lower shadow and very small body), a warning signal that the price could enter a phase of correction after trading above the upper Bollinger band.
Although the price opened with a 3 cents gap down on Tuesday, it was able to climb to a daily maximum at 5.49 euro in the morning. (Monday’s high at 5.56 euro could not be reached.) The weak auction result and the lower power prices pushed the price lower step by step in the afternoon. The contract hit a daily minimum at 5.27 euro, but managed to climb back higher by the time the market closed. The EUA Dec17 finished the day at 5.33 euro, a loss of 7 cents or 1.3% in a daily comparison, so Monday’s shooting start candle seemed to provide a reliable signal.
Most of Wednesday, the benchmark carbon contract traded comfortably in a 10 cents range, but bulls lifted the price to a new daily maximum in the last hour of trading. The price of allowances was lifted by a rally in oil prices after data showed that US crude oil inventories declined more than expected. By the end of the day the EUA Dec 17 climbed 2.8% higher and closed above the upper Bollinger band again.
Positive market mood lifted the price of the EUA Dec17 Thursday morning to a new 4-month high at 5.62 euro (also a Fibonacci level). In the last hours of trading, however, the price of the German front year power turned lower and also some profit taking started in the carbon market, resulting in a daily loss of 2.2%.
Despite some initial hesitation that pushed the price to a daily minimum of 5.29 euro, the EUA Dec17 recovered Friday afternoon and closed the day with a gain of 1.1%.
Last week the price of allowances followed the components of the energy mix and was less impacted by the result of the daily auctions. This might change this week as the offered volume increases by almost 3% due to the Polish auction on Wednesday.
The stable increase of the price of German power, the improvement of the German dark spread and the recovery of the Brent, on the other hand, could counterbalance the negative effect of higher supply.

The technical picture is rather neutral for this week. Although the benchmark carbon contract trades most of the time at or above the upper Bollinger band, the relative strength index (at 63) leaves room for further gains. The price moves in an increasing trend channel since mid-May.




Source: Bloomberg, ICE

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