EUA Dec17: Waiting for the (last?) trilogue on the ETS reform

2017-11-06 07:00
Despite opening with a 5 cents gap up and touching a daily maximum at 7.28 euro, the EUA Dec17 was not able to climb above previous Friday’s settlement price on Monday. Lower power and oil prices and the deterioration of the German dark spread capped a potential correction. The price closed with a loss of 0.4% at 7.14 euro.

After more than a week of declining prices, the EUA Dec17 closed Tuesday with a gain of 3.2%. After opening with a one cent gap up, the price slipped to a daily minimum at 7.09 euro, a level not seen since 13 October. The strong auction result and the higher electricity prices, however lifted the price in the second half of the day to reach a daily maximum at 7.36 euro. The benchmark contract managed to keep almost all of its gains until the market closed. The traded volume of 13 million remained below Monday's 16.4 million as many traders were away from their desks due to the holidays in Germany. 

Despite expectations of a quiet trading session because of the public holiday in most European countries, the EUA Dec17 had a good day on Wednesday. The contract opened 2 cents above Tuesday's settlement price and after some initial hesitation when the price retested the 20DMA, the price started to increase sharply due to a strong auction to hit a daily maximum at 7.57 euro, a level not seen since 25 October (1-week high). In the last hour of trading the price stabilised keeping its gains. The settlement price of 7.51 euro represents a gain of 1.9% from Tuesday's close. The traded volume of 13.7 million was also slightly higher than on Tuesday (13.3m). 

European carbon prices extended their gains on Thursday as the support levels at the 20 and 30DMAs proved strong and market started preparing for the 6th (and hopefully final) trilogue meeting about the reform of the EU ETS. Although the price opened with a 4 cents gap down in the morning and slipped to a daily minimum at 7.43 euro, it regained its strength later on and climbed to a daily maximum at 7.76 euro (a 2-week high). The upper Bollinger band however halted further gains and the EUA Dec17 finished the day at 7.66 euro, a gain of 2.0% from Wednesday's settlement.

The EUA Dec17 hit 7.91 euro on Friday as buyers "panicked" before the next trilogue and lifted the price with their purchases. The price had a rather weak start to the day, but it started climbing higher already before the auction. When the exchange was late with announcing the auction result, many expected the price to fall, but the opposite happened. Those who could not purchase the allowances in the auction that was cancelled, turned to the secondary market and bought the EUAs lifting the price. Traders purchased not only spot and Dec17 EUAs, but the Dec18 call option with a strike price at 16 euro was also popular. The rally was especially spectacular in the afternoon, when the price jumped even above the upper Bollinger band at 7.80 euro. The price closed the day at 7.88 euro, a gain of 22 cents or 2.9%.

The rally of the last days lifted the MACD back above the signal curve, providing a positive signal before the trilogue on Wednesday. The popularity of call options with a double digit strike price also indicates that market participants are optimistic about the future reforms of the EU ETS. 

The RSI, however approached the 70 level and the price trades at the upper Bollinger band, a warning signal that market participants might take a wait and see mood before the key meeting.


Source: Bloomberg, ICE
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