EUA Dec17: COREPER approved ETS reform

2017-11-27 07:04

Political events and higher power prices helped the EUA Dec17 in gaining almost 4% last week.

Failing German coalition negotiations and the prospect of the UK voting against the ETS reforms weighed on the euro and the carbon price Monday morning. The EUA Dec17 fell to a daily minimum at 7.20 euro, the lowest level since 31 October. As the closure of coal capacities remained uncertain and the UK would not secure enough votes to block the reforms (and news in the evening reported that the British support for the reforms could be secured by the European Commission revising the Brexit clause in the Registry regulation), the price recovered in the afternoon and even rallied to a new daily maximum at 7.46 euro. The price closed at 7.44 euro, very close to the top of the day, although the gap between 7.48 and 7.46 euro remained open.
 
The panic sell-off in the last 20 minutes of trading sent the price of the EUA Dec17 0.7% lower on Tuesday. The market was still optimistic in the beginning, as the price opened with a 3 cents gap up from Monday's settlement. Buyers lifted the price to a daily high of 7.59 euro (last Friday's maximum exactly) and the benchmark carbon contract consolidated near 7.55 euro for the rest of the day. In the last hour of trading however some traders might have closed their long positions ahead of today's key meeting about the reform of the EU ETS. The volume traded remained below 10 million.
 
The EUA Dec17 had a cautious start to the day on Wednesday and opened with a 4 cents gap down. After the adoption of the ETS reforms by the COREPER, however, the price jumped to a daily maximum at 7.57 euro. Tuesday's maximum at 7.59 euro could not be reached though. Investor mood worsened in the afternoon and sellers pushed the price to a new daily minimum at 7.28 euro. The price was not able to recover by the end of the day really, and it settled at 7.37 euro, a loss of 2 cents or 0.3% from Tuesday.
 
Traders in the carbon market were not lazy on Thanksgiving Day. With a spectacular volume of more than 23 million allowances, the EUA Dec17 jumped by 3.9% and hit a daily maximum at 7.70 euro, a one week high. Although the price was not able to increase above the previous local high at 7.77 / 7.80 euro, the fact that it closed above the 7.50 euro level where the 20 and 30DMAs meet, is a positive sign.
 
After another strong auction, the EUA Dec17 jumped to 7.82 euro on Friday. The price opened with a 2 cents gap up, but filled on early in the morning already. The rally of Thursday continued then during the day, although with a significantly lower volume. The benchmark carbon contract was able to maintain all its gains by the end of the day. It finished at 7.80 euro, a two week high (+1.8% d/d).
 
After last week's rally, the chart provides some positive signals. The 20DMA was able to distance itself from the 30DMA, although on Wednesday it still looked like falling below its peer. The price was able to break and close above these two moving averages which will be supports in the next days. This makes me think that the price could retest the 8 euro level this week.
 
On the other hand, the price approached the upper Bollinger band at 7.92 euro and the RSI (60) got closer to the overbought territory.
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