Monday, August 28, 2017

EUA Dec17: Closing above 6 euro for the first time since January

Higher power prices and the improving German dark spread lifted the benchmark carbon contract by 4.6% last week.
The EUA Dec17 started the week with a gap down at 5.79 euro, but it managed to recover quickly and climbed to a daily maximum at 5.91 euro. A weak auction result and lower German power prices weighed on the carbon market in the afternoon and the price hit a daily minimum at 5.73 euro. The contract was not able to recover from these levels and finished at 5.75 euro, a loss of 1.2% from previous Friday’s settlement. After the volumes above 10 million we saw last week, the traded volume only reached 5.4 million. Thanks to the correction, the price returned in the zone between the two Bollinger bands and the relative strength index slipped below 70.
On Tuesday, the benchmark carbon contract moved in a range of 15 cents. The price was relatively stable in the morning and more volatile in the afternoon when it fell to a daily minimum (and 4-day low) of 5.66 euro. Higher power prices and the improving dark spread however lifted the price by the end of the day. The price finished the day with a gain of 0.5%.
Despite opening with a gap down on Wednesday, the EUA Dec17 climbed continuously higher as it received support from higher power prices and an improving German dark spread. After Reuters reported that EDF found unknown deviations in its nuclear power plants, the price hit a daily maximum at 5.98 euro in the afternoon, a new 5-month high. The contract remained stable until the end of the day and closed at 5.95 euro (+2.5% d/d). The traded volume reached 32 million due to rolling of positions to March and December 2018. Thanks to the rally, the price reached the upper Bollinger band again and the relative strength index stepped above 70.
Although many market participants considered the price of the EUA Dec17 overbought already, the price started rallying Thursday morning already. After reaching the local maximum at 6.02 euro, many stop-loss orders were triggered and the price jumped to a new local maximum at 6.11 euro first. Then the price returned to 6 euro, but a new rally started in the afternoon and lifted the price to 6.12 euro. From there the price was not able to increase any further and it fell back to below 5 euro late in the afternoon. The benchmark carbon contract finished the day at 5.95 euro, unchanged from Wednesday’s settlement price.
The EUA Dec17 opened with a 2 cents gap up on Friday. The price fell to a daily minimum at 5.93 euro, but recovered quickly and climbed higher continuously during the day. The price hit a daily maximum at 6.10 euro in the afternoon and kept gains by the time the market closed. The settlement price of 6.09 euro was 2.4% higher than on Thursday. Last Friday was the first time since 2 January that the EUA Dec17 closed above 6 euro. The traded volume of 6.8 million however was the second lowest of the week.
This week might have a quiet start due to the Summer Bank Holiday due to which there won't be any auction on EEX on Monday. 
There will be auctions from Tuesday to Friday however and the auction on Friday will offer more than 4 million allowances as the period of halved auction volumes ends. The German auction will be a test of the market, if it has enough appetite to absorb all the allowances.
Should power prices be able to increase further, their positive effect might counterbalance the increasing supply. 
On the other hand, based on the relative strength index both carbon and the German front year power price are overbought already. 
We therefore expect the price of the EUA Dec17 to remain in the increasing trend channel and probably to reach 6.30 euro, but the high auction volume and a possible correction in power prices might push the price below 6 euro again. On the other hand we do not expect the price to fall below 5.70 euro.

Source: Bloomberg, ICE

Monday, August 21, 2017

EUA Dec17: Power prices and auction result have still the biggest impact

The EUA Dec17 jumped to a new 5-month high last week and gained 8% as the announcement of the French nuclear safety authority about checking reactor components lifted French and  German power prices to multi-year highs.
The week started with a volatile trading. The EUA Dec17 ran from 5.32 euro to 5.46 euro in the first five minutes of trading on Monday. And when everybody thought that the contract has set the daily range already, the price jumped further to hit 5.53 euro, a level not seen since mid-July. For the rest of the day the price consolidated around 5.50 euro. The benchmark contract finished the day at 5.52 euro, a gain of 2.4%. The traded volume increased above 10 million, for the first time in August, but remained above 10 million for the rest of the week.
The lack of auction lifted the price of the benchmark carbon contract to a new 5-month high at 5.64 euro on Tuesday. The former resistance at 5.47 euro on the other hand proved a good support during the day. As the energy mix was not supportive at all, the EUA Dec17 was not able to maintain its gains and slipped back to the level it closed on Monday and finished the day with a marginal gain of 1 cent (+0.2% d/d) leaving a bearish shooting star candle stick.
The EUA Dec17 had a spectacular rally on Wednesday helped by a strong auction and higher German power prices. The price increased continuously during the day to hit 5.83 euro, a level not seen since March 2017. As the news about the review of the French nuclear reactors prevailed, the contract was able to keep almost all its gains by the end of the day and closed 4.9% above Tuesday’s settlement price.
The EUA Dec17 had another volatile start to the day on Thursday. After opening with a 3 cents gap up in the morning, the price plummeted quickly to a daily minimum at 5.70 euro. In less than 30 minutes the price then jumped to a daily (and 5-month) maximum at 5.96 euro, but consolidated in a range between 5.76 and 5.88 euro in the rest of the day. The contract finished at 5.81 euro, up 1 cent (+0.02%) from Wednesday’s settlement. The traded volume reached 12 million, above the August average, but below Wednesday’s 21 million. After the huge white candle on Wednesday, the price left a doji candle on Thursday that indicated hesitation of the market participants if the rally can continue. The RSI jumped above 70 and the price traded above the upper Bollinger band. Both these signals confirmed the possibility of a correction.
On Friday, the price was not able to hit any new high and the daily range of 15 cents was also narrower than the previous days. The EUA Dec17 was only able to post a marginal gain of 1 cent (+0.2%).
By the end of last week the price got heavily overbought. The relative strength index ended the week at 73 (textbooks on technical analysis agree that relative strength index values above 70 suggest that the instrument is overbought) and the price of the benchmark carbon contract closed at the upper Bollinger band (at 5.82 euro). 
Also the positive effect of the news about the review of the French nuclear power plants vanished somewhat as in the beginning only documentation will be checked and the authority did not order the closure of the plants.
Market participants will keep an eye on further news about the French nuclears and on power prices (both in France and Germany). 
The second most important factor impacting carbon prices will be auction results this week. In five auctions some 10.8 million allowances will be offered, 20.6% more than last week. Next Friday, 1 September however auction volumes will get back to normal and market participants might start pricing this in already.
All in all, we expect the price of the EUA Dec17 to consolidate between 5.50 and 6.00 euro this week.

 Source: Bloomberg, ICE

Monday, August 14, 2017

EUA Dec17: Auction volume to decrease further due to public holiday

After a relatively strong start the EUA Dec17 turned lower last Monday morning. The decline accelerated after the auction cleared at a 6 cents discount to the secondary market, and the price hit a daily low at 5.27 euro. The improving dark spread helped the price in recovering until 5.32 euro in the afternoon, but the price turned lower in the afternoon again to finish the day with a loss of 1.3%. To reflect summer mood, the traded volume fell further from the daily average of 7.7 million seen last week to 3.7 million.
The EUA Dec17 contract opened Tuesday’s session at 5.32 euro and traded between 5.25 euro and 5.34 euro, before ending the day at 5.27 euro, where it also closed on Monday. A modest volume of 4 million EUAs were traded.
Despite opening one cent below Tuesday’s settlement price, the benchmark carbon contract recovered quickly and hit a daily high at 5.41 euro already before Wednesday noon. The price received good support from a strong energy mix. Especially, the improving dark spread had a positive effect. As a consequence, the price finished the day with a gain of 10 cents (+1.9%). After trading close to the lower edge of the increasing trend channel for two days, the EUA Dec17 returned higher and the risk of breaking below the trend channel decreased again. Tuesday`s and Wednesday`s candles formed a bullish engulfing, generally a positive sign, although the low summer volume does not support the technical signal.
The EUA Dec17 opened with a two cents gap up on Thursday and explored levels not seen since 19 July by hitting 5.47 euro during the day. Although power prices climbed higher, the rally in coal prices deteriorated the German dark spread and weighed also on the price of allowances. As a consequence, the price gave back all its gains from the day, and closed at 5.37 euro, unchanged from Wednesday’s settlement.
The price had a relatively volatile day within a 12 cents range on Friday. The price started the day at Thursday`s settlement level and slipped briefly to a daily minimum at 5.34 euro to climb to 5.46 euro early in the afternoon. By the end of the day the price returned close to its opening levels and kept only 2 cents from its gains.
Thanks to the reduced auction supply and the higher power prices, the increasing trend channel is unhurt and is expected to keep the price also this week.
There will be a total of 8.9 million allowances auctioned this week, 17.1% less than last week. There will be only four auctions this week due to a public holiday in Germany on Tuesday (Assumption Day). 
The lower auction volume will continue to support the price of allowances this week again, but temperatures returning to or below the seasonal average will decrease the demand for power for air conditioning, potentially also reducing the demand for allowances. We therefore expect the price of allowances to move between 5.20 and 5.62 euro this week.

Source: Bloomberg, ICE

Monday, August 7, 2017

EUA Dec17: First week of reduced auction volume brought a gain of 3.3%

Although it opened the day flat compared to previous Friday’s settlement, the EUA Dec17 fell quickly to a daily minimum at 5.10 euro Monday morning. The shock didn’t last long and the contract recovered to trade comfortably between 5.19 and 5.23 euro before the auction. The strong auction result then lifted the price to a new daily maximum at 5.29 euro. The worsening of the dark spread capped the gains. The benchmark contract therefore finished the day at 5.23 euro (+1.0% d/d). Monday’s candle was another doji, indicating the uncertainty of market participants about which direction to take. On the other hand, the 30DMA climbed above the 200DMA, generally considered as a positive signal. The traded volume of 5.7 million in the most liquid contract reflected summer mood already.
The benchmark carbon market moved flat in the first hours of trading on Tuesday, but the surprisingly strong auction result lifted the price to a daily maximum of 5.38 euro. Traders realized shortly after the auction that the high clearing price might have been a mistake and does not reflect real demand for the allowances. So the price returned to 5.30 euro where it stagnated until the end of the day. The closing price represents a gain of 7 cents (+1.3%) to Monday’s settlement. The price closed at the upper edge of the 5.10-5.30 euro range it was trading last week. It also managed to close above the 20DMA.
The EUA Dec17 traded comfortable in a range between 5.25 and 5.30 euro most of Wednesday. In the afternoon however buyers lifted the price above the strong resistance level at 5.30 euro. The price was unstoppable until 5.43 euro, a level not seen for 2 weeks. The price remained close to its daily maximum and settled at 5.43 euro, a gain of 2.5%.
The front year contract opened with a two cents gap down on Thursday and fell quickly to a daily minimum at 5.37 euro. Although the settlement price of the auction was slightly below the secondary market price, the cover ratio was the second best for the week, so the price started climbing higher again in the afternoon. The daily maximum was 5.45 euro, a 2-week high. By the end of the day the price retreated a little, and closed the day at Wednesday’s settlement price, at 5.43 euro.
After opening at Thursday’s settlement price, the EUA Dec17 was able to hit a daily maximum at 5.46 euro, but after the weak auction, sellers pushed the market lower continuously. Price hit a daily minimum at 5.32 euro and stopped just above the 20DMA. The price was not able to recover, and closed the day (and the week) at 5.35 euro.

Beside the energy fundamentals, auction results will be the most important factors to influence the price of allowances. As market participants had enough time to price in the reduced auction supply, we expect the price to move between 5.00 and 5.60 euro.

Source: Thomson Reuters, ICE