EUA Dec17: 5 euro gravity to be tested by high supply

Vertis – The risk of the plenary vote about the post-2020 reform kept traders away from the carbon market last Monday. The price moved in a narrow range between 5.07 and 5.17 euro for most of the day, but when MEPs started discussing reforms in the afternoon, the price turned sharply lower and fell to an intra-day low at 4.88 euro. The settlement price was just 2 cents higher. Monday’s black candle followed a bearish engulfing from the previous week and pushed the MACD below the signal curve.

The benchmark carbon contract consolidated below 5 euro on Tuesday, before the key vote in the plenary of the European Parliament about the reform of the ETS. The price dipped to an intra-day low at 4.93 euro, but managed to remain above Monday’s minimum. Due to short covering and buying interest below 5 euro,  the price started rallying in the last hour of trading and finished at 5.13 euro, a daily gain of 4.7%.

Despite the volatility before and after the vote in the plenary, the EUA Dec17 remained relatively stable on Wednesday. As the outcome was a good compromise of the amendments, the price stabilized near 5 euro after the vote. On the positive side, the 20DMA climbed above the 30DMA.

The day after the vote in the Parliament plenary about the reform of the EU ETS the benchmark carbon contract remained stable, near the 5 euro level. The price traded roughly 10 cents below and 10 cents above this level. By the end of the day, however it fell below 5 euro and closed at 4.94 euro (-2.6%).

Friday started with a new weekly low in the carbon market, but despite a weak auction the bulls invaded the trading floor in the afternoon and lifted the price above 5 euro again. By the end of the day, the price was not able to keep its gains and finished again below 5 euro. Friday’s doji is a signal that the fight between buyers and sellers has not been decided yet.

The last week was characterised by a price converging towards the 5 euro level. In the lack of any major events expected, this might be the case this week as well.

The high supply this week (five auctions and last week for 2017 free allocation to be distributed) and the fact that the price fell below the lower edge of the wedge, increase the chances for more trades below 5 euro.

Source: Bloomberg, ICE

Source: Bloomberg, ICE

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